Connect with us

Legal Business

9 Inspiring Women in the Nigerian LegalTech Space

Published

on

Kelechi Achinonu, Founder Techlawyered and Technology Lawyer

In celebration of International Women’s Day, 2020, Techlawyered would like to share with you the stories of extraordinary women in Nigeria who are innovating in their various roles, while leveraging technology to improve the legal practice and access to justice.

Rahila Olu-Silas Ambassador, World Legal Summit (West Africa)

Biggest Success in LegalTech

Collaborating with Open Law Library Washington DC, a U.S.A based Not-for-Profit Organization to automate the process of Bill drafting, codification, and publication of laws in digital formats in Nigeria

What has been your biggest challenge in Legal Technology?

Researching the legal framework that will enable the adoption of Machine-Consumable legislation in Nigeria. This will enable emerging technologies to consume our laws through APIs and process them without the human factor.

What motivates you to keep going?

The possibility of change in the way legal services is delivered in Nigeria

Funkola Odeleye , Co-founder and CEO at DIYLaw.ng

Biggest Success in LegalTech

I am not sure we have hit our biggest success yet but being able to simplify legal services and topics and making them attainable and understandable comes close

What has been your biggest challenge in Legal Technology?

The problem that we are trying to solve is making legal services accessible and our biggest challenge is how to make it accessible for those without access to technology. It is an irony of sorts.

What motivates you to keep going?

The sheer number of jobs that are being created because people are able to launch their businesses through our platform keeps me going. Also, getting kind words and referrals from people who have used our platform is an affirmation that we are doing something right.

Also Read : Women in Tech: Interview With Anna Collard, Founder Popcorn Training – A KnowBe4 Company

Adejoke Are , Co-founder/Project Lead, The Flemer Project

Biggest Success in LegalTech

I run an organization – the Flemer Project – that helps indigent pretrial detainees conclude their matters in court as quickly as possible, by leveraging on the support of young volunteer lawyers who directly provide legal representation to these detainees.

Although we are never physically present in court to monitor the performance of our volunteer lawyers, incorporating technology into our solution has made monitoring and evaluating their work quite a seamless affair. Through this approach, we have been able to provide legal representation to almost 200 indigent pretrial detainees and to secure the release of 60 of them from prison.

What has been your biggest challenge in Legal Technology?

I don’t have any technical experience or skill in building technology platforms and this has been a drag on the development of a comprehensive technology platform needed to manage our overall operations.

What motivates you to keep going?

The passion of our young volunteer lawyers who go over and beyond to give their best to people who can never repay them, and the fact that our solution literally changes people’s lives by helping them regain their freedom.

Oluwatosin Amusan , Product Development Lead, Mylaw.ng

Biggest Success in LegalTech

Delivering legal services to customers via technology, from the comfort of their couch. The fact that my team and I were able to develop products and show value enough to earn the trust of customers who end up drawing on the products on mylaw.ng and coming back for more.

What has been your biggest challenge in Legal Technology?

Constantly answering the question “Is legal technology a viable sector in Nigeria”. Looking at it from a global perspective with 3 unicorns in legal tech this question does not surface in the international scene. However, In Nigeria, we have quite a number of legal tech startups who have to prove themselves 10 times harder, show double the traction required to prove that this is a viable sector.

What motivates you to keep going?

The refusal to settle for mediocrity. I make it a ritual to look back at works I have done in various facets of my life every six months, and without a doubt, I see the growth not just intellectually but in physical form. It is easy to get complacent with doing just what is required, but there is always room to improve and do better. No one changed the world by doing what just was required of them.

Faith Obafemi , Head of Strategy, Future-Proof Intelligence

Biggest Success in LegalTech

Establishing as a recognized expert in the blockchain space in less than 2 years. This has been a never-ending journey that has stretched me intellectually, financially, emotionally and otherwise. But, I have been better for it. I have met some of the most amazing persons on this journey. People who help broaden your horizon.

What has been your biggest challenge in Legal Technology?

Breaking/building a tech foundation. In the early days, things were just mostly Greek to me. But, the more I kept at it, the familiar it became and the easier it was to understand.

What motivates you to keep going?

Money! Hahaha, I know most people would’ve been expecting something knight worthy like passion to help others, desire to impact, etc. Well, why all that is great, it still requires money. I am yet to see a broke person help another or have an impact on others.  So, yes, money motivates me to keep going. Because, with money as a tool, I can achieve other things that I hold dear.

Rhoda Obi-Adigwe, Founder Wemora

Biggest Success in LegalTech

Our greatest success was when Hill gave us an award and a grant for our legal software which aids in the writing of will and creation of trust online. This was very inspiring to us knowing that our efforts were being recognized.

What has been your biggest challenge in Legal Technology?

Our biggest challenge to legal technology is cultural and traditional bias. People are still skeptical to include their personal and private details online making it difficult to prepare legal documents for them. This fear also arises from the fact that the country has no stringent data policy laws.

What motivates you to keep going?

The legal tech space is evolving and we are beginning to see most traditional things done online like the CAC providing platforms for business registration, so our motivation is to keep pressing knowing fully well that these changes and policies will soon affect our own part of legal IT.

Yinka Bada , Lead Product Manager, LawPavilion Business Solutions

Biggest Success in LegalTech

One of the things I can consider as part of my biggest success in legal technology is two-fold:

i. My involvement in conceptualizing and facilitating the development and continuous improvement of software solutions that solve challenges around Practice Management, Legal Research and Legal Drafting for lawyers and judges, hence improving their efficiency by making it easier for them to do more in less time than usual. I’ve been working with a team of bright minds to continuously improve the leading Electronic Law Reports platform; the only one with Legal Analytics, and most cited in courts by top lawyers, and judges of both the Court of Appeal and Supreme Court.

ii. Leading and mentoring at different times,  young and aspiring Product Managers and Software Engineers  to passionately seek to identify the pain points in our justice delivery system, and  proffer innovative solutions

What has been your biggest challenge in Legal Technology?

What I can consider as a challenge for me in legal technology is the huge amount of time, efforts and resources it has taken over the years to build and communicate the value of legal-tech solutions to the conservative legal industry; the sweet thing, however, is that this same industry is now embracing technology fully, and even asking for more

What motivates you to keep going?

The joy of facilitating an accelerated (albeit gradual) access to justice in Nigeria-  the possibility of having the practice of law and ultimately, the dispensation of justice continually become technologically improved for more efficiency and effectiveness.

Nankunda Katangaza , Co-founder, African Law & Tech Network (ALT Network)

Biggest Success in LegalTech

I guess my biggest success in legal technology was in following my hunch that there was a need and interest on the part of African legal professionals in technology and what it could do for the legal sector and creating the ALT Network to kick-start that conversation on the continent. The ALT Network has grown to over 150 individual and business members over the past two years and has a thriving community and activities across the continent which I could not have predicted when we set up the platform!

Engaging with the fast-growing African tech community has brought incredible insight into the legal and regulatory needs of tech disruptors across all sectors. I am delighted that the Network has quickly grown into a valued pan-African interlocutor in the discussion between lawyers, technologists, and regulators to build effective, responsive and progressive frameworks for tech growth in Africa.

What has been your biggest challenge in Legal Technology?

My biggest challenge is also one that can be described as a ‘first world problem’ in that it is the challenge of opportunity and time – so many opportunities, not enough time! In the short couple of years, it has been around, ALT has attracted a significant following and interest from across the African legal and tech sectors.

Law cuts across each and every area of personal, public and commercial life and as such, ALT and its membership have a role to play across the continent from influencing public policy to creating tools for delivering access to the law to all. Finding the time to explore and follow all the possibilities and requests alongside a full-time job does keep me up at night!

What motivates you to keep going?

I have to say that the energy and enthusiasm of the ALT members is more motivation than anyone could ask for! Each day brings a new member. Each week brings a new idea and opportunity in a different country from an existing member so there’s never a quiet moment.

But more than anything, the prospect of bringing together people and entities from across the continent who are all driven by the same thing – to create and build prosperity for all Africans through innovative tech use and creating an enabling legal environment for success. It has also been amazing to meet so many Africans working in different sectors and industries and to collaborate with some of them.

Our recent partnership with Africa Digital Heritage, for example, to explore the legal issues arising in tech and the preservation of African cultural heritage was eye-opening and inspirational. I look forward to ALT continuing to be at the heart of similar collaborations and conversations over the years.

Also Read: Women in Tech: Interview With Elaine Wang, Cloud and Software Solutions Director for Rectron

Odunoluwa Longe, Country Director, Acceleration (West Africa) at HiiL

Biggest Success in LegalTech

My greatest success is seeing the entrepreneurs succeed. Success here does not just entail in competitions but in the ecosystem as well.

What has been your biggest challenge in Legal Technology?

My biggest challenge has been finding businesses that are solving justice problems and are focused on doing the same. A lot of people do not realize that justice is beyond just legal tech, It should be more focused on people gaining access to services that actually help them solve their problems.

What motivates you to keep going?

I am motivated by the need to help entrepreneurs and see them succeed.

Please join Techlawyered to celebrate these Wonder Women of Legal Tech.

Article By: Kelechi Achinonu

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Legal Business

Tiyani Majoko: New York City based legaltech startup Founder on 10 years in the legal industry

Published

on

Tiyani Majoko is a lawyer and the Co-founder of New York City based legaltech startup Anü, a legal services marketplace. She is experienced in product design, identifying customer segments (user and buyer personas), data analysis and Agile. Tiyani talks to Alaba Ayinuola on her 10 years journey in the legal industry, starting from Biglaw, to in-house counsel, to running a small firm, to starting a legal tech company and I am always exploring something new. Excerpt.

In the beginning:

Life in Biglaw

On 3 January 2011, I pulled up to 22 Fredman Drive which were the offices of Eversheds (now Hogan Lovells). It was my first day at work as a Candidate Attorney, a 2-year journey as an apprentice in a law firm which culminates with passing the attorney bar/board exams. I bounced out of bed both nervous and excited that I was taking the first step in my career. I asked my dad to help me iron my outfit for the day; white shirt and black slacks, then I tied back my dreadlocks and put on my sensible black heels that he had bought me.

My dad, who is also a lawyer, was visibly beaming that I had been selected as a Candidate Attorney at an international law firm and I was following his footsteps. He had taken 2 weeks off to help me furnish my apartment, get comfortable with the route to work (though I didn’t have a driver’s license yet) and settle into my new life as a solicitor. Then he returned to his own law firm and practice in Zimbabwe.

At the end of orientation week, I knew the law firm life was not for me. I started my first 8 months rotation in a litigation team, where the only highlight of that rotation was the team and free lunches at advocates chambers. During that rotation I may or may not have forgotten to go to court to note a judgment. The daily time sheets, indexing and pagination of court files, carting files up and down to advocates offices for a 0.4 time entry and forced interactions at month end drinks were the bane of my existence. People would look forward to, or dread, the month end billing report as it revealed who was rising or bubbling under budget.

It was only later when I learned what really matters isn’t what you bill, but what you invoice and eventually collect!

I also learned about office politics and the power players of the firm if you wanted to be offered a position as an associate at the end your 2 year period as a Candidate Attorney.

The rainmaker whose team operated by its own rules (coming in at 10am and leaving at 4pm), the partner who had been at the firm all his 40 year career, the partners who struggled to make budget and how we all tried to stay away from them because they wouldn’t be in a position to retain you as an associate. There was also the partner who never took on a female or black associates, the partner who only took on LGBTQ associates and so I made a concerted effort to join the team of the partner who only took on Black associates.

She ran the mining team, working with international mining companies in helping them to obtain and retain their licenses to operate. This was the first time I felt like I was doing something I enjoyed- it was an all Black, female team. We would go on long road trips to visit mining clients, communities or regulators. I got to spend a lot of time out of the office- away from my time sheet, going to mines and meeting regulators- often these trips would allow for some sight seeing, such as visiting the Big Hole in Kimberly and going underground in a coal mine.

As a mining lawyer I felt like I was doing something important by contributing to the development of communities. I got my first glimpse into politics in the wave of Marikana, investigating unsafe working conditions, developing environmental plans for rehabilitating mine property, working with corporate executives to understand their strategy and the adrenalin of speeding down the N1 from Joburg to Pretoria to meet arbitrary regulator deadlines for various submissions.

I loved the centrality of the role and how each matter brought new challenges.

Each client had a different problem and the partner I worked for gave us free rein on matters. This built my professional confidence to execute and communicate as a professional. Although she would manage the relationship with the client, I would send the emails, they clients would call me if they had questions, etc. My criticism of the team was that it was too familial for a work environment and we could have used more intelligent tools to track matters, create reports and be efficient- which would have helped us to bill more. In 2013 the Black bubble was burst and the gang broke up.

Throughout my career I wanted to maintain that feeling of being connected to people, processes and policies while creating a product that’s profitable.

Going In-House

After Biglaw, I tried a couple of different things. I went in-house in an oil and gas company, where my boss lived in Durban and I was based in Joburg- so basically I have been remote since 2013. It was my first time working alone, after being accustomed to an office with 400 lawyers. I had to learn to trust my work, be thorough, do research and create my own support network of mentors. I was running legal and business affairs- so I would put together decks, find co-investors on projects and lead meetings after a short phone call with him. He was part of the young, new money Black elite that had made money from government contracts and had former President Jacob Zuma on speed dial. He opened my eyes to a whole class of Black, young, rich entrepreneurs that traveled to Bali on private jets. In those environments I quickly learned how political favor is volatile and qualifications to do the work are optional. At the time Zuma was ousted, a lot of them- including my boss- went broke.

Starting Out

I was 5 years into my career and had been disappointed by employers, so I made a bet on myself. I had some savings, worked out a rent free living situation and talked my varsity best friend into starting one of the first legal consulting firms in South Africa. I learned about finding clients, keeping clients, expanding revenue streams, business models, leadership, networking and expansion. We were so adorable when we started, see our launch video below.

I also launched Africa’s first lawyer on demand service. As a founder, I was able to find that feeling again, but I quickly realized that our service was too manual for scale in a way that mattered. Part of it was not knowing what tools we could use for a small services focused businesses and as I set my sights on moving away from a lifestyle business- I knew that technology would essential to our success. I was 8 years into my career at this point, running a good profitable company and contemplating the hard pivot to grad school in a foreign country, with a 6 figure price tag.

Starting Up

Ultimately I made the decision and attended Cornell with the vision of going back to my business then things changed. Instead, I become a founder- again- which I wrote about here.

While in school I thought of becoming a Product Manager, however it wasn’t presented to the law students as a career option, it was solely for Engineers and MBAs. Initially, I didn’t care because I didn’t understand most technical terms and I was just trying to keep up with my own course work. In January 2020, the blitz interview season was upon us, the technical students and MBAs were filling up their diaries so fast and law students were high key scrambling. I started to look at the PM job requirements and I was like “Hey, I know this stuff.. well some of it.” I went to the career services office like:

I have always been of the opinion that whatever an MBA graduate can do; a lawyer can do- just with a calculator.

I was benched very hard and told to stay in my lane- to look for roles in legal tech companies- maybe doing business development, or sales if I no longer wanted to practice law.

If the school didn’t see what I saw for myself, then I had to make it happen. All this was happening on the backdrop of a Coronavirus outbreak, BLM protests and many graduates being unable to find work. I half-heartedly applied for jobs, while I turned my full attention to a class project that had some real-world traction. When I went full time with Anü, I looked at this as an opportunity to do 2 things — either run a successful tech startup or have enough skills to rebrand myself as a PM. Either way I was setting myself up to win.

Next

My 5th pivot is loading as I am staring down another path. It’s less scary because I have learned how to get good at taking wild bets on myself adaptability. In contrast, my father has been a lawyer his entire life. He graduated from law school 32 years ago, each year he has renewed his practicing license and I honestly envy him for finding the thing he is good at, that he also enjoys. I enjoy certain aspects of the law, but not all the ways that it is practiced. I need room to experiment, to be playful and to also not always follow precedent. I am extremely blessed because my dad has supported these expeditions. Now it’s time for his investment to pay off.

5 Tips on Making Career Pivots

  1. Create A Big Vision for Your Life.
  2. Be Intentional About Skills To Acquire.
  3. Know Your Core Competency.
  4. Network Like Crazy.
  5. Community (I created The Legal Werk for mid-career legal professionals who want to make a pivot, switch, climb or reset their careers to have a source of support.) If you want to join us sign up for updates here.
  6. Know Your Tolerance for Pain.
  7. Have Faith.

Visit Anü

Download BAO E-MAGAZINE

Continue Reading

Legal Business

Derivatives: Enforceability of Close out Netting in Nigeria

Published

on

By: Olayemi Anyanechi, Managing Partner at Sefton Fross

The Companies and Allied Matters Act (CAMA 2020) is a game changer for derivative transactions in Nigeria. It introduces innovative provisions that will impact financial collateral arrangements typically used by parties involved in derivative trading. This article will examine the novel provisions introduced by CAMA 2020 as it relates to financial collateral arrangements.

An examination of financial collateral arrangements under the CAMA 2020

Until recently, the enforceability of derivative transactions in Nigeria had lingering questions. This was mainly due to the uncertainty over enforcement of the close out netting provisions. To mitigate this, counterparties were typically advised to pursue the Automatic Early Termination route.

Netting is a reconciliation and payment mechanism which involves the aggregation and conversion of mutual payment obligations into a single claim, so that the party owing the greater aggregate amount makes a net payment to the party owing the lesser aggregate amount. Forms of netting include contractual/settlement, insolvency and close-out netting.

Netting under extant Nigerian laws

Prior to CAMA 2020, Nigerian laws supported contractual netting and insolvency netting.
Insolvency netting is a mandatory right of set-off that arises when a company goes into liquidation. It is automatic and applies at the date on which the liquidation commences

Insolvency netting is recognised under the provisions on mutual credit and set-off in section 33 of the Bankruptcy Act 1 and implied by reference in the previous CAMA 2. Section 33 of the Bankruptcy Act provides that where there has been mutual credits, mutual debts or other mutual dealings between a debtor and any other person claiming to prove a debt in the debtor’s liquidation, an account of what is due from one party to the other in respect of such mutual dealing and the sum due shall be set off against any sum due from the other party and the balance of the account and no more shall be claimed or paid on either side respectively. Thus, it required the claim and cross claims to be between the same parties in the same right.

Contractual or settlement netting is the netting of reciprocal deliveries or payments which are due on the same date. It provides for mutual payment obligations of contracting parties to be discharged by a single net payment obligation from one party to the other. This form of netting addresses the risk presented when parties’ obligations are not performed simultaneously, particularly where payment obligations are in the same currency to be performed on the same date. It assesses the parties’ mutual payment obligations and requires physical payment only from one of the parties, usually the one with the larger debt. 
Close-out netting on the other hand, is typically employed to minimise the risk of exposure to an insolvent counterparty. It applies to contracts having different settlement dates and results in dealings between the counterparties coming to a close.

Prior to CAMA 2020, insolvency netting was mandatory and it was not possible to enforce certain provisions under such agreements after the commencement of winding up without a court order. This was because under Nigerian law, any disposition of the property of the company made after the commencement of the winding up shall, unless the court otherwise orders, be void.

Furthermore, in line with the provisions of section 499 of the erstwhile CAMA, where the termination of obligations under netting agreements do not occur prior to commencement of winding up, the liquidator may have been able to “cherry-pick” and require the performance of contracts that he deemed beneficial while disclaiming the onerous contracts.

New close out netting provisions

CAMA 2020 now recognises and provides a legal framework for termination and close-out netting.

Close out netting is defined under CAMA 2020 to include the occurrence of “the termination, liquidation or acceleration of any payment or delivery obligation or entitlement under one or more qualified financial contracts entered into under a netting agreement”. Netting agreements are recognised to include a ‘master netting agreement’, a ‘master-master netting agreement’, and a ‘collateral arrangement’.

Section 721 of CAMA 2020 further provides that:

(1) “The provisions of a netting agreement is enforceable in accordance with their terms, including against an insolvent party, and, where applicable, against a guarantor or other person providing security for a party and shall not be stayed, avoided or otherwise limited by-(a) Any action of the liquidator;(b) Any other provision of law relating to bankruptcy, reorganisation, composition with creditors, receivership or any other insolvency proceeding an insolvent party may be subject to; or(c) Any other provision of law that may be applicable to an insolvent party, subject to the conditions contained in the applicable netting agreement.”

With this provision the perennial issue with derivative transactions in Nigeria, which was to the effect that only insolvency netting was possible, has been addressed.

In terms of obligations of the parties to a netting agreement surviving the commencement of insolvency proceedings, the only obligation/right, if any, of either party is to make/receive payment or delivery under a netting agreement which shall be equal to its net obligation/entitlement with respect to the other party as determined in the netting agreement.

Furthermore, the provisions under CAMA 2020 limit the liquidator’s powers to disclaim netting agreements as onerous contracts. It provides that:
Any power of the liquidator to repudiate individual contracts or transactionswill not prevent the termination, liquidation or acceleration of all payment or delivery obligations or enforcements under one or more qualified financial contracts entered into under or in connection with a netting agreement, and applies, if at all, only to the net amount due in respect of all of such qualified financial contracts in accordance with the terms of such netting agreement”.

Section 721(6) of CAMA 2020 also provides protection for netting agreements in that a liquidator is prohibited from avoiding the terms of such agreement unless there is clear evidence that the enforcing party made such transfer or incurred such obligation with actual intent to “hinder, delay or defraud any entity to which the insolvent party was indebted or became indebted”. The relevant time period is the period on or after the date that such transfer was made or such obligation was incurred.

Also Read Closing The Gender Gap: An Interview with Dream Girl Global (DGG) Founder, Precious Oladokun

These new provisions mitigate the risks hitherto inherent in “qualified financial contracts” which includes a whole range of derivatives and will go a long way to enhance financial stability and investor confidence in the Nigerian financial sector.

Conclusion

There is no doubt that with the improved regulatory landscape, the CAMA 2020 has commendably set the tone for the actualisation of key innovations in the market, providing enabling legal backing for netting, bankruptcy remoteness and attendant regulatory frameworks for the smooth functioning of financial markets in Nigeria which would ultimately impact positively on transactions between counterparties and other participants in the market.

The Companies and Allied Matters 2020 is currently awaiting gazetting as the last step to its effectiveness. 

Ref:

1. The Bankruptcy Act, CAP B2, LFN 2004, s 33.
2. The Companies and Allied Matters Act CAP C20 LFN 2004, s 493.

3. The Companies and Allied Matters Act CAP C20 LFN 2004, s 413.
4. The Companies and Allied Matters Act 2020, s 718.
5. The Companies and Allied Matters Act 2020, s 721(2),(3).

6. The Companies and Allied Matters Act 2020, s 721(4).

Article by: Olayemi Anyanechi, Managing Partner at Sefton Fross

Download BAO E-MAGAZINE

Continue Reading

Banking / Insurance

Current Legal Issues Arising from Banking and Financing Arrangements

Published

on

In August 2020, Diagoe Plc’s Nigerian entity announced that it was struggling to refinance a $23 million debt and trim costs following a shortage of dollars in the local-foreign exchange market. While the lack of access to greenback (dollar) remains a growing concern for borrowers in Africa, the downturn in the revenue and profits as a result of COVID-19 has recently become a more prevalent cause for the inability of many borrowers to fulfill their contractual obligations.

The disruption of supply chains, compulsory quarantine, and social distancing regulations are a few examples of the effect of COVID-19 which in turn have materially caused economic instability and affected the ability of borrowers to meet their financial obligations. There is therefore a need for lenders and borrowers to critically consider the implications of the current economy on their financial obligations.

This article highlights some key implications the current financial terrain may have on borrowers’ businesses and their ability to comply with their contractual obligations. The article further sets out recommendations for lenders and borrowers who are faced with the task of funding and repaying loans under respective financing arrangements. While there are numerous impacts of the resultant effect of COVID-19 on covenants in finance documents, this article highlights only a few of such key legal consequences on financial obligations.

Financial Conditions and their Implication on Covenants in Finance Documents

Generally, financial covenants in a loan agreement are undertakings given by the borrower to test the performance of the business servicing the loan and to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity.  These performance covenants may cover the borrower’s business both back or forward to assess whether the business is showing any signs of distress that could potentially affect its financial obligations under the finance documents.

Also Read: Helios Investment Partners Backed Africa Specialty Risk Group Launches

However, as a result of the steps taken to combat the COVID-19 pandemic, many businesses have seen a severe and abrupt drop in income which has affected the ability of businesses to meet some performance covenants.Where these covenants have been breached as a result of the pandemic, the lenders may declare a default under loan documents and demand early payments of loan which acts as a drawstop, such that the borrowers will not have access to their facilities. A drawstop event means a breach by the borrower of a financial covenant which gives the lender the right to refuse to make further loan advances under a facility agreement.

In light of the foregoing difficulties that both lenders and borrowers may face in these uncertain times, the following paragraph sets out practical solutions that may be explored by the parties. 

Legal Considerations for Borrowers and Lenders

With the current unpredictability of the financial markets, it is important that borrowers and lenders conduct a critical review of their current loan documents to verify the implications of COVID-19 on their rights and obligations. Most importantly, borrowers have to fully disclose to their lenders the current situation of their businesses, highlighting any potential breach before it happens helps to build trust and to enable the lenders to have a clear picture when deciding if they will be willing to adjust financial obligations in line with the current realities of the economy and take into consideration some practical solutions set out below.

First, parties may agree to re-negotiate and subsequently amend their financial covenants, taking into consideration the impact of COVID-19 on the borrower’s ability to comply with their financial covenants. For instance, certain definitions in the finance documents may no longer reflect the current realities of the borrower’s business, such as EBITDA which is used as a metric for thelast four fiscal quarter periods of earnings before interest, taxes, depreciation, and amortization to measure the company’s financial performance.

Thus, where the EBITDA has been affected as a result of the pandemic an amendment to its substance will be an appropriate step in order to reflect the current financial condition of the borrower. Other re-negotiation may be in relation to compliance with certain conditions provided under the finance documents.For example, a facility agreement may include provisions requiring the borrower to fulfil certain further conditions precedent before it can access additional funding under the relevant facility.

It usually includes confirmation that:

(i) no Event of Default or a potential Event of Default has occurred and is continuing; and

(ii) the repeating representations are true in all material
respects, in each case, as at the date of the utilisation request and the proposed utilisation date.

In such instances, parties may either amend the provisions or the borrower may request that the lender grant waivers in the event that such conditions will not be fulfilled.

Another consideration that the borrower may explore (subject to the fulfillment of any available conditions or if waivers are granted by the lender) is utilizing any undrawn commitment under its existing facilities. Although, it has been highlighted above that material breaches of covenants may give right to the lender torefuse to provide additional funding, it may be in the interest of lenders to provide same. This is because additional funding may positively impact the borrower’s business and in turn improve the lender’s chances of full debt recovery.

Finally, parties may consider undertaking a full restructuring of the financing by re-negotiating substantial terms and entering into restructured facility documentation which may capture relaxation of financial covenants, obtaining a moratorium on interest payment obligations, all necessary requirements, amendments, waivers, and consents required by the borrower. Essentially, the restructured facility documentation is drafted on much better terms that reflect the current financial conditions and commercial needs of the borrower.

Conclusion

The global COVID-19 pandemic has no doubt placed a strain on the ability of some businesses to service their debts under finance documents. While many governments especially in developed countries have granted some aids, this may not be enough especially for companies in certain industries that have been seriously hit by the pandemic. The situation is even worse in undeveloped markets where there is little or no support from government. Thus, it is unavoidable that re-negotiation and restructuring are considerations that will likely be put forward by borrowers to avoid triggering defaults under their finance document during these unprecedented times.

It is advisable that lenders on the other hand, are more flexible with their approach with their borrowers and are willing to work around re-negotiating the financial covenants with the borrowers given the current uncertainties arising in the economy.

Written By: Bukola Adelusi recently completed her LL.M in corporate law at Western University, Ontario. Prior to her LL.M, she practiced with a top-tier law firm in Nigeria, where she specialized in banking and finance, M & A and private equity.

Continue Reading

Ads

Most Viewed