Corporate Banking - Practice and Law

Associate Banking Diploma — Option Subject Corporate Banking - Practice and Law
Objective To enable candidates to understand: - The legal problems which can arise in transactions with corporates in both the UK and abroad; - The ways in which financial institutions (and banks in particular) can safeguard against such problems.
Notes
1.		Candidates are advised to study the following subject prior to sitting this paper: Law and Practice.
2.		The emphasis of this syllabus is placed on the documentation which evidences commercial and international banking transactions; consequently an understanding of banking products and services (as dealt with in other examination subjects) is required in order to understand the legal implications.
SYLLABUS
1. Conflict of Laws
	1.1	Introduction to the principles of private international law; conflict of laws.
	1.2	How to determine which law will govern a banking contract, and in particular those contracts with an international element. The importance of the choice of law clause in international banking agreements. Factors influencing choice of law. Market practice in relation to choice of law. Market practice in relation to choice of law clauses. The use of express choice of law clauses.
	1.3	The proper law concept. What the proper law actually governs. The importance of other systems of law. The usefulness of public international law in international banking transactions.
2. Jurisdiction
	2.1	The various bases of jurisdiction. How an English court would ascertain whether it had jurisdiction.
	2.2	the use of express choice of forum clauses, including exclusive and non-exclusive forms. The doctrine of forum non-conveniens.
	2.3	The importance and use of arbitration in international banking transactions.
3. Sovereign Risk/Sovereign Immunity
	3.1	The legal and practical problems associated with country lending; sovereign immunity; political disturbance; state succession and the act of state doctrine.
	3.2	How to protect the position of the banker within the documentation when entering into a transaction with a sovereign state or state entity.
4. Facility Letters and Term Loan Agreements
	4.1	The legal nature of facility letters and term loan agreements, i.e. fixed/floating rates, multi-currency option and other common variations.
	4.2	Provisions commonly found in facility letters and term loan agreements, including conditions, precedent, representations and warranties and covenants. The purpose and effect, both legal and practical, of such clauses.
	4.3	Special problems which are posed where the loan is cross-border or cross-jurisdiction.
5. Syndicated Loan Agreement (Primary Syndication)
	5.1	The philosophy and purpose of syndicated loan agreements. The syndication process in practice. The legal obligations created by the offer document and the mandate.
	5.2	The importance of the information memorandum and the legal difficulties it posses for the managing bank, the participating bank and the borrower.
	5.3	The rights and duties of the managing and agent banks and the legal relationship existing between such banks and the syndicate members.
6. Selling Loan Assets (Secondary Syndication)
	6.1	Legal and practical problems associated with the transfer and assignment of loans; transferable loan instruments, transferable loan certificates and participation agreements.
	6.2	Regulatory and balance sheet implications of asset sales.
7. Events of Default
	7.1	Consideration of the typical events of default incorporated in facility letters and term loan agreements.
	7.2	The commercial and financial objectives of the clauses used. The legal problems associated with the clauses, including the difficulties posed by the doctrine of waiver.
	7.3	Limitations placed on a banker’s right to accelerate the loan.
8. Remedies and Enforcement of Remedies Availability of specific performance and set-off. The legal problems associated with rescheduling facility letters and term loan agreements to both corporations and sovereign debtors.
9. Enforcement of Foreign Judgements
	9.1	The distinction between recognition and enforcement.
	9.2	The traditional basis of enforcements and the impact of the Administration of Justice Act 1920 and the Foreign Judgements (Reciprocal Enforcement) Act 1933. Enforcement of judgments obtained within the courts of the EU.
	9.3	The importance of Mareva injunctions and similar types of freezing orders.
10. Euronotes and Commercial Paper
	10.1	External risk factors with euronote and commercial paper documentation; legal problems posed by the information memorandum and other offering documentation.
	10.2	Euro-commercial paper documentation. Legal problems posed by the dealer agreement and deeds of covenant.
	10.3	The issue of negotiability.
	10.4	The regulatory and legal framework under the Banking Act 1991.
	10.5	particular legal problems posed by sterling commercial paper.
11. Swaps and Related Instruments
	11.1	Problems posed by swap documentation with specific reference to the payment, grossing-up, conditions precedent, representations and warranties, covenants, illegality, events of default, compensation, assignment, governing law and jurisdiction clauses.
	11.2	Master agreements and the problem of insolvency. Forward rate agreements.
12. Exchange Controls Introduction to exchange control regulation. Common exchange control clauses found in international loan agreements. Market practice in relation to exchange control.
13. Withholding Tax/Taxation
	13.1	Definition of withholding tax. The importance of double tax treaties. The development of market practice to protect against withholding taxes. Withholding tax avoidance schemes.
	13.2	Grossing-up loans and tax spared loans. Stamp duties and similar stamping taxes. Stamp duty reserve tax.
14. Secured Finance and Guarantees in the International Context
	14.1	The purpose of security in international banking. The application of conflict rules to securities laws. The safeguards which a banker should take in order to effect an appropriate security interest over the borrower’s assets.
	14.2	The purpose of guarantees in international lending. Legal constraints on the ability of corporations and sovereign states to give effective guarantees. Protective clauses which might be incorporated within the guarantee. The distinction between guarantees and letters of comfort.
15. Legal Aspects of contract Guarantees and Performance Bonds Consideration of the types of bonds and guarantees which might be used in international finance transactions and the legal problems associated therewith. The distinction between first demand and conditional guarantees. The importance of private international law principles. Recent developments to avoid the unfair calling of bonds. ECGD and general insurance support for the issue of contract bonds. The use of syndication techniques. The difficulties posed for the bank by the fraud exception. 16. Legal Opinions Consideration of the importance of legal opinions in international banking transactions. What the opinion should cover. Opinions as to borrowers’ status, powers and authorisation. The form of the opinion; degree of protection afforded by legal opinion.
THE EXAMINATION Time Allowed: Three hours. Examination Format: The paper has two sections. Section A contains three questions of which candidates should attempt two. Each question carries 30 marks. Section B contains three questions of which candidates should attempt two questions. Each question carries 20 marks. RECOMMENDED READING G Penn, A Shea & A Arora, Law and Practice of International Banking (Sweet & Maxwell). Journal: The Journal of International Banking Law (ESC Publishing, Oxford).