Share charge (LBO debt security)
OVERVIEW
As part of a secondary LBO transaction in France, we were instructed to prepare a deed of release in relation to a previous share charge granted on shares in a Hong Kong company, a new share charge on the same shares as well as legal opinion on the new share charge.
After months of due diligence and negotiations between the fund and the managers-owners, and thereafter also with the banks for the senior and mezzanine debt, the completion date had been set for two weeks’ time.
CHALLENGE
We only had limited time to review the 100+ pages of the master loans agreement and familiarize ourselves with the parties, and their rights and obligations in relation to the share charge, as well as identify – and rule out – potential legal issues such as the prohibition of financial assistance set out in Section 275 of the Companies ordinance (Cap. 622).
Our role was also to coordinate with the company secretary of the Hong Kong company to ensure they prepare in time the necessary authorizations for the grant of the new share charge as well as the corporate documents for enforcing the share charge if needed.
ACTIONS
We immediately started drafting the deed of release, based on the previous share charge granted on the shares of the Hong Kong company.
For the review of the master loans agreement, we focused on:
- checking that every authorization required was granted, whether by the shareholder of the Hong Kong company (a company in France), or by the Hong Kong company itself;
- quickly identifying other agreements that needed to be shared with us in order to provide the information to draft the share charge;
- identifying alternative mechanisms or drafting options to be discussed with the lawyers for the senior debt.
OUTCOME
The various drafts were prepared in turn and circulated for comments to the lawyers for the various parties (all international household firms). Completion could take place at the set date.
