SLD3UAZAN6 Session 9 Presentation Drafting Legal Opinions...
Transcript of SLD3UAZAN6 Session 9 Presentation Drafting Legal Opinions...
DraftingLegalOpinionsforArticle9SecurityInterests:NavigatingtheComplexitiesandAvoidingLiability
ErikW.Hepler,Kirkland&EllisJamesC.Schulwolf,Shipman&Goodwin
Overview• Opinionsaretypicalinfinancingtransactions
u Alwaysgivenatinitialclosing
u Giveninconnectionwithsome,butnotall,amendments
Ø Alwaysif“newmoney”
• ContrasttoM&Atransactions
u Formanyyears,opinionswereroutinelygiveninM&Adeals
u Todaytheyarealmostnevergiven
Overview• Whogivesopinions
u Borrower’scounselu Somelenders/investorsrequireopinionsfromtheirowncounsel
u LocalCounselØ State-by-stateissues
u Foreigncounsel
Overview• Whatdoesanopinionlooklike?
u IntroductionØ Describeswheretheopinionrequestcomesfrom
u Listofdocumentsreviewedandbeingopinedonu Standardassumptions
Ø ExecutionbypartiesØ GenuinenessofsignaturesØ Certificatesofgovernmentalofficials,etc.
Overview• Whatdoesanopinionlooklike?(cont.)
u Standardassumptions(cont.)Ø Officers’certificates
u Knowledgedefinition
u Actualopinions
u Entityandcontractopinions
u UCCopinionsØ Attachment
Ø Perfection
Ø Priority(?)
Overview• Whatdoesanopinionlooklike?(cont.)
u Assumptionsu Qualificationsu Whatlawiscovered?u Concludingparagraphs
Ø Whattimeperiodiscovered?Ø Whocanrely?
SourcesofOpinions• Officialsources
u ABAReportsØ ABAGuidelinesØ ABAPrinciples
u TriBarReportsØ TriBarIIØ TriBarLLC&PartnershipReportsØ TriBarRemediesReport
SourcesofOpinions(cont.)• OfficialSources(cont.)
u TriBarReports(cont.)Ø TriBarArticle9Report
Ø TriBarReportonSecondarySalesofSecurities(UCCArticle8– mayapplytosecurityinterestininvestmentproperty)
u StateBarReportsØ Corporate,LPandLLCReports
Ø RealEstateOpinions
Ø RemediesReports
SourcesofOpinions(cont.)• OfficialSources(cont.)
u Other“Official”SourcesØ ALIRestatementoflawgoverninglawyers
Ø NationalCustomaryPracticeStatement
u GoodSummaryattheABALegalOpinionResourceCenter–http://apps.americanbar.org/buslaw/tribar/
• UnofficialSourcesu LawFirm“model”opinions
u Doyouuse“yourform”ortheformsentbyLender’scounsel?
§ “Predicate”opinions
§ Noconflicts/noconsents
§ SpecificStatusOpinions
§ DiligenceIssues
§ Organization,existenceandgoodstanding
§ Corporatepower
§ Dueauthorization
§ Dueexecution
§ “CreditPartyisan[entity]existingandingoodstandingunderthe[stateentitylaw].”
§ Opinionisoftenlimitedtoinformationgainedfromcertificatesissuedbythestateinquestion
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§ “CreditPartyhasthe[typeofentity]powertoexecute,deliverandperformitsobligationsundertheOpinionDocumentstowhichitisaparty”
§ RequiresanalysisoforganizationaldocumentsoftheCreditParty,aswellastherelevantentitylawofthestateoforganization
§ someentitiesmayhaverestrictionsondebtactionsthattheycantakeintheirorganizationaldocuments
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§ “CreditPartyhastakenthe[typeofentity]actionnecessarytoauthorizeitsexecution,deliveryandperformanceoftheOpinionDocumentstowhichitisaparty.”
§ needtodiligencethatproperboard/managerand/orshareholder/memberactionhasbeentakentoauthorizethetransaction
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§ “TheOpinionDocumentshavebeendulyexecutedanddeliveredonbehalfoftheCreditParty.”
§ ensurethatdocumentsaresignedbyproperlyauthorizedpersons
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“Theexecution,deliverybytheCreditPartyoftheOpinionDocuments[performancebytheCreditPartythereunder/thepaymentbytheCreditPartyofitsobligationsthereunder]willnot(i)constituteaviolationoftheorganizationaldocumentsoftheCreditParty,(ii)constituteaviolationofanyapplicableprovisionofexisting[coveredstate]laworUnitedStatesfederalstatutorylaworpublishedregulation,or(iii)resultinaviolationof,orresultinthecreationofalienunder,anyagreementindentifiedinExhibitAattachedhereto”
§ Noconflictswithotheragreementsshouldbelimitedtoaspecifiedlist–not“allagreements”or“allmaterialagreements”
§ needtoreviewlistedagreementstomakesurethereisnoconflict
§ noconflictsmerelyrequiresthatareasonablefutureperformancewillnotconflict–notthatthereisnowayinthefuture(suchasadefault)therewouldnotbeaconflict
§ shouldstatelawbelimitedtostatutorylawandregulationsaswell?
§ treatmentoffinancialcovenants
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§ “Noconsent,approval,authorizationororderof,orfilingwith,anyUnitedStatesfederalof[coveredstate]governmentalauthorityorbody,isrequiredforCreditPartytoobtaintherighttoexecute,deliver,andperformitsobligationsunder,theOpinionDocuments,exceptfor
(1)thosealreadyobtained,(2)thoserequiredbyCreditPartyfortheordinarycourseofbusiness,and(3)thoserequiredundertheSecuritiesLaws.
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§ ifCreditPartyisaregulatedentity(e.g.,apublicutilityorarailroad),mayexcludethingsrelatingtotheirregulation
§ sometimesseparateregulatorycounselwillcoverthosematters
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§ InvestmentCompanyAct
§ Litigation
§ RegulationU
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§ “TheCreditPartyisnotan“investmentcompany”requiredtoberegisteredassuchundertheInvestmentCompanyActof1940,asamended,ortherulesandregulationsthereunder”
§ requiresdiligenceontheCreditPartytodetermineitsstatus
§ evenifthisopinionisnotgiven,someconsideritanelementofenforceability
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§ “Toouractualknowledge,(1)therearenoactions,suitsorproceedingspendingorthreatenedagainsttheCreditPartywithrespecttotheOpinionDocumentsand(2)theredoesnotexistanyjudgment,orderorinjunctionprohibitingtheconsummationofthetransactionscontemplatedbytheOpinionDocuments”
§ shouldnotcoverlitigationingeneral(evenmateriallitigation),ifnotwithrespecttotheOpinionDocuments
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§ “AssumingapplicationoftheloansascontemplatedbythecreditagreementandthatthelenderisnotsubjecttoRegulationT,theexecutionanddeliveryofthecreditagreementbytheCreditPartyandthemakingoftheloansthereunderwillnotviolateRegulationUorX.”
§ ifnomarginstockownedbyCreditParty,simpleopiniontogive
§ wheremarginstockispresent,moreanalysisisnecessary
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§ Diligenceismostimportantwithrespecttoentityopinions
§ mostlikelyareatofaceliability
§ Diligenceimportantbothtolawandtoorganizationaldocuments
§ neverassumetheeasyanswer§ wheremarginstockispresent,more
analysisisnecessary
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§ Coverage§ Limitations
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“EachoftheOpinionDocumentsisavalidandbindingobligationoftheCreditPartyandisenforceableagainsttheCreditPartyinaccordancewithitsterms.”
§ Unlessexceptionstaken,coversmostprovisionsofagreements
§ Includingusury,choiceoflaw,etc.
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§ Shouldnotbereadtocovercreationandperfectionofsecurityinterests
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UCCOpinions• Attachment• Perfection• Priority• Remedies
UCCOpinions(cont.)• UCCOpinions- Example
u TheSecurityAgreementcreatesinyourfavoravalidsecurityinterestintheitemsandtypesofpropertyoftheBorrowerdescribedinSection____oftheSecurityAgreementtotheextentthatasecurityinterestmaybecreatedinsuchpropertyundertheUCC.Assumingthatthereisnoagreementamongthepartiestopostponethetimeofattachment,suchsecurityinteresthasattachedandisenforceableagainsttheBorrowerwithrespecttosuchCollateral.
u TheFinancingStatementshallbedeliveredforfilingtotheOfficeoftheSecretaryoftheStateofDelaware.Uponduefiling,suchFinancingStatementwillperfectthesecurityinterestcreatedbytheSecurityAgreementintheitemsandtypesofCollateraldescribedinsuchFinancingStatementinwhichasecurityinterestmaybeperfectedundertheUCCbythefilingofafinancingstatementinsuchoffice.WearenotadmittedtopracticeintheStateofDelawareandtheopinionsetforthaboveisbasedsolelyuponourreviewofthecompilationoftheDelawareUniformCommercialCodesetforthintheCCHSecuredTransactionsGuide.
UCCOpinions(cont.)• UCCOpinions- Attachment
u BasedoncontractopinionsØ AuthorityØ ExistenceØ Enforceability
u ScopeØ IsthetransactionsubjecttotheUCC?Ø IsthecollateralcoveredbytheUCC?
UCCOpinions(cont.)• UCCOpinions– Attachment(cont.)
u Scope(cont.)Ø Hasthesecurityagreementbeenproperlyauthenticated?
Ø Isthereappropriategrantinglanguage?
Ø Isthecollateralproperlydescribed?
v Reminder– “allassets”isOKintheUCC-1butnotinthesecurityagreement
UCCOpinions(cont.)• UCCOpinions– Attachment(cont.)
u Scope(cont.)Ø Assumptions
v Rightsincollateral
v Valuegiven
UCCOpinions(cont.)• UCCOpinions– Perfection
u Byfilingu Bypossessionu Bycontrolu DueDiligence– Thingsyouneedtoknow
Ø TypeofentityØ JurisdictionoforganizationØ Registeredorganization?
UCCOpinions(cont.)• UCCOpinions– Perfection(cont.)
u DueDiligence– Thingsyouneedtoknow(cont.)Ø ChiefExecutiveOffice
Ø Securities– certificatedoruncertificated?
Ø Locationofdepositaccount
Ø IndividualNamev Driver’sLicense
v Other?
Ø Trust- identityoftrustee
UCCOpinions(cont.)• Perfectionbyfiling– “Ordinary”collateral
u Collateralofatypeastowhichperfectionisaccomplishedbyfiling
u Properfilinglocationandfeeu UCC-1iscompletedcorrectlyandorlegallysufficient
Ø CorrectdebtornameandaddressØ Correctindicationofcollateral
v “Allassets”OKonUCC-1
UCCOpinions(cont.)• PerfectionbyFiling– Fixtures
u Typicallydoneaspartofmortgagefilingu Determineproperfilinglocation
Ø Typicallylandrecordsorrecordingoffice,notSecretaryofState
u Checkcorrectboxesu Notespecialrulesfortransmittingutilities
UCCOpinions(cont.)• Perfectionbyfiling– Non-USDebtors
u Anon-USdebtorisnotaregisteredorganization
u Looktoplaceofchiefexecutiveoffice
u Usefilingsystemforthatjurisdiction
UCCOpinions(cont.)• Perfectionbyfiling– individualandtrustdebtors
u 2010AmendmentstoArticle9clarifiedrulesu Individuals
Ø Nameofdriver’slicenseorotherrecognizedID(ifstatechose“Option-B”– otherwisedriver’slicense)
u TrustsØ Nameoftrust,ifthereisone,ornameofsettloroftrust,otherwise
UCCOpinions(cont.)• Perfectionbypossession
u CertificatedsecuritiesØ PossessiontrumpsfilingØ Howdoyoudeterminewhohaspossession?
v Agentorbailee?
v Gratuitousbaileeinmultiplelendersituations
v Acknowledgmentfrombailee
UCCOpinions(cont.)• Perfectionbycontrol
u Requiredforperfectionagainstdepositaccounts,securitiesaccounts,electronicchattelpaper
u ControlagreementØ Depositorymustagreetofollowordersofsecuredpartywithoutfurtherconsentofdebtor
Ø Whatifdepositorywillnotprovideacontrolagreement?
UCCOpinions(cont.)• Perfectionbycontrol(cont.)
u ElectronicChattelPaperØ Determinewhethercollateraliselectronicchattelpaper
Ø ChoiceofLaw
u Somestatese.g.NY,DE,havenon-uniformprovisions
UCCOpinions(cont.)• UCCOpinions– Priority
u Priorityopinionsarerarelygivenwithrespectto“filingcollateral”andareoftenconsideredtobeaninappropriaterequest
Ø SometimesgiveninratedloansØ ManyfirmshaveapolicyagainstgivingpriorityopinionsØ Whengiven,aretypicallybasedonaUCCsearchreportreview
v Canyouassumeitsaccuracy,particularlyifitwasdonebyanoutsideservice?
UCCOpinions(cont.)• UCCOpinions– Priority(cont.)
u Priorityopinionsmaybegiveninconnectionwithperfectionbypossessionorcontrol
u CanalsobegiveninthecaseofaprotectedpurchaserunderArticle8
UCCOpinions(cont.)• UCCOpinions– Remedies
u Ageneralremediesopinionistypicallynotgiven
u Standardwaiversareassumed
u “Practicalrealization”opinionisoftengivenØ Typicallylocatedwithinassumptionsandqualifications
Whocanrelyonopinion?• Addressee(s)
u Syndicatelendersu Participants
• Prospectivelendersorparticipants?• Counsel?• Thirdparties,e.g.accountants,investmentbankers,valuationfirms,turnaroundconsultants?
Periodcoveredbyopinion• Asofdateofopinion• Subsequentperiodsshouldbedisclaimed
§ Inbound– thatagreementchoosingopinionlawstateasgoverninglawisenforceable§ canoftenbegiven(ifthereisaclear
statelaw)§ manyfirmsdonotgive(orgivein
limitedfashion:“excepttotheextentsuchchoiceoflawofNewYorkasthegoverninglawismadeincompliancewiththestatutorylawsoftheStateofNewYork”)
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§ Outbound– thatopinionlawstatewillrecognizechoiceofotherjurisdiction’slaw§ generallyshouldberesisted§ comesupmostfrequentlyincross-
borderdeals
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§ Sometransactionsmayhavecreditpartiesfrommultiplejurisdictions,oragreementswithdifferentgoverninglaws
§ Whereafirmdoesnotpracticeinoneormoresuchstates,differingapproachestohandlingissues
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§ Foroutofstateparties§ mayuselocalcounsel§ mayuse“guide”opinion(relyingon
readingentitystatuteonly)§ commonapproachforDelaware
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§ Foroutofstateagreements§ mayrefusetocoverthem§ mayuselocalcounsel§ mayuse“asif”approach(opineon
documentsasiftheyweregovernedbycoveredlaw)§ needconsentofrecipientforsuch
approach
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§ Manyofthesameconcernsasmulti-statetransactions,butheightened
§ Enforcementofforeignjudgmentsopinion§ canbegiveninreasonedformin
certainstates§ outboundchoiceoflawopinions
§ typicallyrequested§ abilitytogiveinquestion(andcan
dependonstate)§ Bewaretheas-ifopinion
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§ Assumptions
§ Qualifications
§ Mustbereasonable§ can’tmakefactualassumptionsknown
tobeincorrect§ incertaininstances(“as-if”opinions,
forexample)canassumethingsifdisclosedtoanddiscussedwithrecipient
§ Can’tdirectlyorindirectlyassumelegalconclusions
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§ Accuracyofdocumentsandsignatures
§ Predicateopinionsandenforceabilityofdocumentsfornon-coveredparties
§ Nooralagreements§ Accuracyofgovernmentcertificates
§ Accuracyoffactualinformationinagreementsandinclientcertificates
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§ rightsinthecollateral§ valuehavingbeengiven§ whereopinionsgivenonspecifictypesofcollateral,assumptionsregardingtheclassificationofsuchcollateral
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§ “Exceptasexpresslyotherwisesetforthinthisletter,ouradviceoneverylegalissueaddressedinthisletterisbased exclusivelyontheinternallawsoftheStateof__________ortheFederallawoftheUnitedStateswhich,ineachcase,inourexperienceisgenerallyapplicablebothtogeneralbusinessorganizationswhicharenotengagedinregulatedbusinessactivitiesandtotransactionsofthetypecontemplatedintheOpinionDocuments(butwithoutourhavingmadeanyspecialinvestigationastoanyotherlaws),exceptthatweexpressnoopinionoradviceastoanylaworlegalissue(a)whichmightbeviolatedbyanymisrepresentationoromissionorafraudulentact,or(b)towhichanyCreditPartymaybesubjectasaresultofyourlegalorregulatorystatus.”
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§ Mayalsocovercertainspecificotherlawsforcertainspecifiedopinions
§ otherstateentitylawsforpredicateopinions
§ otherstateUCCsforfilingopinions
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§ SecuritiesLaws§ Antitrustlaws,employeebenefitlaws,fiduciarydutylaws,environmentalandlanduselaws,taxlaws,healthandsafetylaws,laborlaws,criminallaws,regulatorylaws
§ Terrorismandsanctionslaws
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§ “(i)applicablebankruptcy,insolvency,fraudulentconveyance,reorganization,moratoriumandsimilarlawsaffectingcreditors’rightsandremediesgenerallyandjudiciallydevelopeddoctrinesinthisareasuchassubstantiveconsolidationandequitablesubordination;(ii)theeffectofgeneralprinciplesofequity(regardlessofwhetherenforcementissoughtinaproceedingatlaworinequity);(iii)animpliedcovenantofgoodfaithandfairdealing;and(iv)othercommonlyrecognizedstatutoryandjudicialconstraintsonenforceabilityincludingstatutesoflimitations.”
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§ Guaranteesuponchangestotheunderlyingobligation
§ Fraudulentconveyancesavingsclauses
§ Eligiblecontractparticipantissueswithswapguarantees
§ E.U.“bail-in”provisions
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§ Waiversofunwaivablerights§ provisionsthatamounttopenalties
§ indemnificationforsecuritieslawsviolations
§ submissiontojurisdiction,venue,waiveroftrialbyjury
§ arbitrationprovisions§ covenantsnottocompete§ requirementstoamendinwriting
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§ “EachenforceabilityopinionisalsosubjecttothequalificationthatcertainprovisionsoftheOpinionDocumentsmaynotbeenforceableinwholeorinpart,althoughtheinclusionofsuchprovisionsdoesnotrendertheOpinionDocumentsinvalid,andtheOpinionDocumentsandthelawoftheStateof___________containadequateremedialprovisionsforthepracticalrealizationoftherightsandbenefitsaffordedthereby.”
§ Sometimeslimitedtosecuritydocuments
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§ Verystatespecificissue
§ Insomestates,shouldnotbecoveredatall
§ Inotherstates,shouldonlybecoveredincertaintypesoftransactions,orwithcertaintypesofborrowersand/orlenders
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§ proceeds(withreferenceto9-315)§ bankruptcyprovisionsregardingpreferencesandSection552
§ Priorityofsecurityinterests(exceptforprotectedpurchaseropinions)
§ Realestate-relatedcollateral(includingtimber,crops,farmproducts,as-extractedcollateral)
§ Money,L/Crights,certificateoftitlecollateral,commercialtortclaims,consumergoods
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§ supergenericcollateraldescriptions
§ collateralwhereperfectiongovernedbyfederallaw(airplanes,boats,etc.)
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