Commercial Finance

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Commercial Finance

• Paul Ali
• LAWS2024

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Course Outline

• Focuses on general legal principles of debt
  transactions
• Corporate authority and directors duties
• Building blocks
• Title transfer
• Equitable interests
• Security interests
• Emphasis on core transactions

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Assessment

• Class participation
• 20 of total mark
• Compulsory
• Progressive assessment
• Mid-semester exam (40) OR
• Research essay (40)
• Final exam
• 40
• Mid-semester and final exams will have identical
  formats

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Research essay

• Expected that students will go beyond the
  textbook and supplementary materials
• Additional references are on pp 1-2 of the
  Reading Guide
• See references on p3 for examples of standard
  required
• Students are encouraged to use Lexis and Westlaw

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Corporate fund-raising

• Companies are the main economic actors
• How do companies raise funds?
• Equity (exchanging membership of the enterprise
  for funds)
• Hybrids (best of both worlds solutions, usually
  an accounting, tax or regulatory capital
  motivations)
• Debt (no membership but a superior, absolute
  entitlement)

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Debt I

• Fungible debt
• Market-traded
• Corporate bonds
• (a) Bond Market Association (London and NY)
• ABS (using securitisation to cherry pick
  assets)
• American Securitization Forum (NY)
• European Securitisation Forum (London)
• Australian Securitisation Forum (Sydney)

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Debt II

• Non-fungible or bespoke debt
• Single lender loans
• Multi-lender loans (syndications, participations)
• Developing markets for multi-lender loans
• Loan Market Association (London)
• Loan Syndications Trading Association (NY)
• Asia Pacific Loan Market Association (Singapore
  and Sydney)

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Core concepts

• Legal title and lesser proprietary interests
• Alienation
• Operates by subtraction
• Absolute assignments
• Conditional assignments or assignments by way of
  security (mortgages)
• Encumbrance
• Charges

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Contract law is also important!

• Positive covenants
• Early warning mechanisms
• Provision of financial statements
• Duty to advise of material adverse changes
• Negative covenants
• Wealth preservation
• Prevent diversion of wealth to other creditors
• Prevent asset-stripping by controllers

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Basic transaction
Primary Obligation
Borrower
Creditor

• Positive and Negative Covenants

Title
Recourse (i) Title-based (ii) Encumbrance
Secured Property
Sale/Manufacture
Exchange Product
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Transplanting the basic transaction

• Varieties and combinations of security interests
• Financial markets collateralisation
• Creditor contests
• Security substitutes
• Guarantees
• Negative pledges
• Romalpa clauses
• Credit default swaps
• Extension to non-traditional or exotic assets
• Intellectual property rights
• High-value mobile assets
• Securitisation
• True sale
• Whole business
• Synthetic