Can lenders in a syndicate appoint a trustee or agent to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate?

Lending & Secured Finance

Croatia Small Flag Croatia

The Croatian law does not regulate the role of agent and trustee, but agents and trustees are recognised in financial practice in Croatia. Croatian banks act in such roles in relation to the international syndicated loans taken by Croatian legal entities, undertaking all of the listed actions on behalf of the banks in syndicate. Like in other jurisdictions where trusts are not recognised, parallel debt provisions are sometimes used to achieve a similar commercial result.

Czech Republic Small Flag Czech Republic

Parallel debts or other constructions, where syndicate partners appoint an independent trustee or agent, are not common in Czech Republic. Before the recodification of the Civil Code in 2014, there was no legal basis for such action. The recodification introduced new § 2010 BGB. The role of a third party as security agent was recognised in principle. However, the significance of this Section in practice proved to be negligible. Due to the lack of concretization as well as the lack of jurisprudence regarding this paragraph, no syndication partners wanted to take the risk and test the newly introduced legal institution into Czech law and its unknown consequences. It is therefore only an abstract possibility to use a non-syndicated third party as trustee or agent.

At the beginning of 2019, the possibility of appointing a trustee or agent has been introduced in the Czech Bonds Law. These newly introduced regulations are much more detailed and comprehensive than § 2010 BGB or already existing insolvency rules. In addition, it is explicitly stipulated that these provisions shall apply analogously to security of debts not connected with the covered bonds. This analogous applicability is also stated in the explanatory memorandum to the freshly introduced Bond Law.

It remains to be seen whether syndication partners will make use of this recently created legal instrument in the future or whether they will continue to rely on established legal institutions.

Finland Small Flag Finland

Yes, the agent/trustee concept is recognised under Finnish law and commonly used in syndicated loans. The trustee/agent can (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate, provided that this is provided for in the underlying finance documentation.

Germany Small Flag Germany

(i) An agent or trustee can hold security on the syndicate's behalf provided that in order to hold security which has been created by way of a pledge the agent or trustee would also need to have a corresponding payment claim against the security grantor or an obligor. In order to achieve that the relevant finance documents provide for customary parallel debt language. (ii) An agent or trustee may enforce security on the syndicate's behalf which may requires the agent/trustee to be furnished with a particular power of attorney for certain court proceedings. (iii) An agent or trustee may generally apply enforcement proceeds to the claims of all lenders in the syndicate.

Spain Small Flag Spain

Spanish law does not recognise the concept of security trustee. The security must be granted in favour of each and every existing lender (as direct beneficiaries) not just in favour of the security agent.

Therefore, if the enforcement of the security is carried out by the agent of the syndicate, such agent will need to prove that it is duly and expressly empowered by means of a power of attorney granted in its favor by each of the lenders, which will need to be legalised with the “Apostille” pursuant to The Hague Convention of October 5, 1961.

Philippines Small Flag Philippines

Lenders in a syndicated financing arrangement can appoint a trustee or agent for all such identified purposes. The appointment constitutes a contract of agency and a special power of attorney shall have to be executed by the lenders in favor of the agent to enable the latter to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate.

Sweden Small Flag Sweden

Even though Swedish law does not have its own trustee concept, it allows for lenders to appoint a trustee/agent to represent them in matters relating to the loan documentation, including to hold security on the syndicate’s behalf, enforce the syndicate’s rights under the loan documentation and apply any enforcement proceeds to the claims of all lenders in the syndicate. However, in order to enable the trustee/agent to represent the syndicate lenders in an enforcement scenario in Swedish courts, each syndicate lender will have to submit a written power of attorney in favour of the trustee/agent for legal proceedings. As the title trustee is no legal institute per se under Swedish law, the titles trustee/agent may be used interchangeably.

Turkey Small Flag Turkey

In general, apart from the fact that the lenders can hold the security package in their own capacity, it is possible to have a security agent or a security trustee holding the security package on behalf of a pool of lenders. However, if a security trustee will be used, then such role cannot be undertaken by a Turkish entity for such concept is not recognised under Turkish law. Therefore, a non-Turkish entity can be appointed as a security trustee if it has the capacity to act as a trustee under the laws of the jurisdiction of incorporation and its capacity to act as a trustee which is recognised under its own jurisdiction would also be recognised under Turkish law. This rule also applies to enforcement of the syndicate's rights under the loan documentation and application of enforcement proceeds to the claims of all lenders in the syndicate since no such role is regulated under Turkish law.

United States Small Flag United States

In the United States, a syndicate of lenders can, and often does, appoint an agent to hold collateral, administer the loan facility and manage the enforcement process. This agent is often styled as an administrative agent and one entity acts on behalf of all of the lenders. However, the various functions of an agent can also be split among multiple entities, in which case there would be a separate administrative agent, collateral agent and perhaps other roles. An agent is often a lender, but an agent does not need to be a lender or hold any of the loans or commitments.

For an agent to hold collateral for a syndicate of lenders, the lenders must appoint the agent and the agent must accept the appointment and agree to hold collateral on behalf of the lenders. The agent would typically be the sole counterparty or beneficiary (on behalf of all of the lenders) of the debtor’s grant under the security agreement. The agent will also be the sole entity to take perfection steps with respect to the collateral and will enforce the lenders’ rights on their behalf. Typically, lenders are not able to enforce rights directly, but can only do so by directing the agent to act on their behalf. Enforcement proceeds can be applied by the agent, although are typically subject to a negotiated waterfall.

Agents typically have the ability, under the credit agreement or separate agency appointment agreement, to act on behalf of the lenders in their discretion and are indemnified by the lenders when acting in this role.

However, even in these areas, the lenders (typically by simple majority) have the power to direct the agent.

Switzerland Small Flag Switzerland

Generally this is possible and such arrangements are recognised in Switzerland. The role of the security trustee or agent and its appointment by the secured parties depend on the type of security interests at stake:

a. for security interests in the form of assignments or transfers for security purposes, the security trustee or agent can enter into the relevant security agreement, hold and enforce the security interest in its own name for the benefit of the secured parties;

b. for security interests in the form of pledges, all secured parties must – because of the so called accessory nature (Akzessorietät) of the security interest – be identical to the creditors of the secured claims and thus must be a party to the relevant security agreement, which is achieved by having the security trustee or agent entering into the security agreement in the name and on behalf of all secured parties as a direct representative. For this purpose, all secured parties must effectively appoint and give power to the security trustee or agent to act in their name and on their behalf. This is addressed with specific provisions in the credit agreement or the intercreditor agreement.

It is standard practice to have the relevant Swiss law governed security agreements drafted to allow them to survive (without amendment) any changes to the secured parties and, to a certain extent, the security trustee or agent.

United Kingdom Small Flag United Kingdom

Yes. Such security trusts are recognised and generally given effect to in England and Wales and a security agent/trustee can hold security, enforce the syndicate’s rights under the security documents and apply any proceeds in accordance with the instructions of the lenders as set out either in an intercreditor deed or a separate security trust deed.

Jersey Small Flag Jersey

The concept of agency and relationships of trust are recognised under Jersey law. Accordingly, agents or trustees can hold security on the behalf of a syndicate. With reference to the facility agreement (or other related agreement, such as an inter-creditor agreement), a security trustee or agent may enforce the syndicate's rights under the loan documentation and apply any enforcement proceeds to the claims of all lenders in the syndicate.

Hong Kong Small Flag Hong Kong

Lenders in a syndicate can appoint a trustee as agent to (i) hold security on the syndicate's behalf, (ii) enforce the syndicate's rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate.

Austria Small Flag Austria

In general, a syndicated loan structure is entered into between the borrower and several lenders (mainly banks) including a separate consortial agreement arranging the internal and external relations of the syndicate. The lenders appoint a trustee or agent (Konsortialführer), who administers the syndicate and pool their securities in one pool in order to manage and realize the securities in a more efficient way.

The structure of such a security pool concept depends on the type of security, whether it is an (i) accessory or (ii) non-accessory security:

1. accessory securities (akzessorische Sicherheiten), e.g. pledge or surety cannot exist without the underlying secured claim. Therefore, it is not possible to arrange a security structure regarding accessory securities with only one agent, which is not at the same time a lender in respect of all obligations being secured by the accessory securities. A possible solution is to establish a “parallel debt” structure, where all lenders agree that the security agent is the joint and several creditor of all claims and the borrower enters into a separate obligation (in the amount of the total loan amounts of all lenders) towards the security agent (the parallel debt). This parallel debt will be collateralised (the security is accessory towards the parallel debt) and the security agent acts as trustee for the other lenders.

The concept of parallel debt structure is not yet officially recognised by Austrian courts decision in this regard. However, it is common market practice in Austria to establish a parallel debt structure and appoint an agent.

2. non-accessory securities (nicht akzessorische Sicherheiten) may exist even, if the borrower has repaid the outstanding and secured claim (for instance a guarantee). Therefore, it is possible under Austrian law that one trustee or agent holds collateral on the syndicate´s behalf and enforces the snydicate´s rights under the loan documentation.

In case of an appointment of a security agent, the lenders usually agree that only the security agent shall have the right to enforce the securities and will then distribute the proceeds from such enforcement among all lenders.

Another concept in the course of the restructuring of a company has become increasingly popular in Austria recently, i.e. the restructuring trust (Sanierungstreuhand). In case of a restructuring trust, the shares of the company are transferred to a trustee who then shall manage the company and if it is not possible to end the “crisis” of the company to initiate a selling process. There are different reasons for the establishment of a restructuring trust and installing a trustee as shareholder and managing director of the company, e.g. the financing banks have lost faith in the previous management or the existing shareholders (Altgesellschafter) did not participate in the restructuring of the company.

The main benefit of this concept is that it enables creditors through the trustee to restructure the company and, if the restructuring fails, the trustee can perform a well-structured sales process generating high revenues for the financing banks and existing shareholders. This would not be possible, if the shares are merely pledged. As there is no uniform model for the restructuring trust, it can be structured differently for each individual case.

Even though the restructuring trust is already used as restructuring method in Austria, the Austrian Supreme Court has not yet approved this concept so far.

Mexico Small Flag Mexico

Yes. Under Mexican law, a lender may also act as administrative and/or collateral agent. In Mexico, the approach of lenders is to appoint a co-lender or a financial entity, foreign or national, as administrative and/or collateral agent. Mexican trustees are less often appointed, unless the transaction involves a security trust (fideicomiso de garantía) holding secured assets.

The appointed collateral agent is often authorized to enforce syndicate's rights upon the occurrence of an event of default (EOD) and apply any proceeds.

Mexican law-governed documents usually contain provisions whereby the syndicate grants a commercial agency or power of attorney to the administrative and/or collateral agent.

Syndicates and lead arrangers usually demand the execution of intercreditor agreements.

Bosnia & Herzegovina Small Flag Bosnia & Herzegovina

Laws do not recognize the role of an agent or trustee. However, there have been cases in practice where a “security agent” has been appointed to hold security on the syndicate’s behalf.

Updated: June 5, 2019