Monthly Highlights: June 2016

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from June 2016.

Brexit

The full impact of the UK's decision to withdraw from the EU remains to be seen and the EU and UK domestic legal landscape will continue to change throughout the withdrawal process. LexisPSL is reviewing their content on the basis of information available and will keep it under regular review throughout the withdrawal period. In the meantime, our report Continental Shift: Brexit & the Law provides expert guidance on:

  1. the referendum essentials
  2. what Brexit could mean for different practice areas, and
  3. views on Brexit from around the world
  4. the mechanics of an exit

Lending

Changes for IFRS 16 incorporated in Loan Market Association (LMA) facility documentation

In January this year, the International Accounting Standards Board (IASB) released a new accounting Standard IFRS 16—Leases. IFRS 16 is a new accounting standard relating to the accounting treatment of leases. It takes effect from 1 January 2019. For more information, see the News Analysis: IFRS 16—a new lease of life?

The LMA has now incorporated drafting into each of its template facility agreements to address this development. The changes involve:

  • replacing the use of the term 'finance or capital lease' in the definition of 'Financial Indebtedness' with a description of the balance sheet treatment, and
  • including an optional exclusion from the definition of 'Financial Indebtedness' (and related definitions) of leases currently treated as operating leases under the old lease accounting standard (IAS 17), together with a drafting note highlighting the potential impact of IFRS 16 on EBITDA.

PDF versions of the facility agreements highlighting the changes are available to members of the LMA on the LMA website.

PSC register—impact on lenders

New rules on keeping a register of persons with significant control (PSC) came into force on 6 April 2016. In News Analysis: PSC register—impact on lenders, Joanna Belmonte, senior associate and professional support lawyer in the banking and finance team at Gateley Plc, considers its potential impact upon lenders. The piece looks in particular at:

  1. the impact the PSC register regime is likely to have on existing loan documentation
  2. the additional steps lenders and their advisers may have to take when carrying out due diligence prior to entering into any new loan transactions
  3. changes the PSC register regime is likely to be bring to future standard form loan and security documents and other condition precedent documentation
  4. the risk of the terms of loan documentation leading to the lender being a PSC themselves
  5. the risk of security taken by a lender (particularly any share charge) leading to the lender being considered a PSC

Security

Changes to Companies House fees for registering security to take effect from 30 June 2016

In February 2016, Companies House announced that some of its fees, including its fees for registering security, were to be increased in April. In March 2016, Companies House postponed the implementation of the increase. The increase will now come into force on 30 June 2016. The new fees are as follows:

Registration type Current fee New fee
Registration of a charge by paper £13 £23
Registration of a charge digitally £10 £15

Details of all the Companies House fees that are changing on 30 June 2016 are available here on the Companies House website.

Shipping finance

BIMCO publishes standard novation agreements and updates charter parties

The Baltic and International Maritime Council (BIMCO) has published three standard novation agreements which provide a legal framework to change one of the original parties to a contract. The first two agreements cover a change of charterer and change of owner under time charter parties. The third agreement deals with a change of buyer under a shipbuilding contract.

BIMCO is also currently updating its widely used SUPPLYTIME 2005 time charter for offshore service vessels and BARECON for the bareboat chartering of a ship.

A copy of the BIMCO press release outlining changes to the documentation is available here.

Debt capital markets

Supreme Court hands down judgment in case of BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 Plc and another [2016] All ER (D) 89 (Jun)

This case concerned the issue of whether £3.3bn of enhanced capital notes (ECNs) were redeemable, which depended on whether a 'capital disqualification event' (CDE) had arisen, as defined in the terms and conditions of the trust deed relating to the ECNs.

The terms and conditions of the trust deed provided that a CDE was deemed to have occurred if, as a result of any changes to the regulatory capital requirements or any change in the interpretation or application of these by the Financial Services Authority, the ECNs ceased to be taken into account for the purposes of any 'stress test' applied by the FSA in respect of the consolidated core tier 1 ratio.

The Court of Appeal determined in December 2015 that a CDE had occurred and that the ECNs were redeemable. For more information on the decision by the Court of Appeal, see Early redemption of convertible securities.

The ECN trustee appealed the Court of Appeal's decision to the Supreme Court, which this week upheld the decision and dismissed the appeal.

In Supreme Court split on ECN contractual interpretation, Stephen Robbins, of South Square, considers the Supreme Court's decision.

Regulation

Bank Recovery and Resolution Directive—Article 55

A policy paper setting out the final rules and a supervisory statement created to implement Article 55 of the Bank Recovery and Resolution Directive (BRRD) has been published by the Prudential Regulation Authority (PRA). The rules will come into force on 1 August 2016.

The policy paper provides feedback on responses to the PRA's recent consultation paper, CP8/16, on the contractual recognition of bail-in.

The PRA supervisory statement SS7/16 sets out its expectations for BRRD companies regarding impracticability to do with the contractual recognition requirement and the considerations such companies could take into account when determining impracticability.

A full copy of the PRA policy paper can be viewed here.

A copy of the supervisory statement is available here.

Benchmark Regulation published

Regulation (EU) 2016/1011 (known as the Benchmark Regulation) relating to indices used as benchmarks in certain circumstances has been published in the Official Journal of the EU by the European Parliament and the Council. It entered into force on 20 June 2016, and will apply in full from 1 January 2018.

A copy of the press release in relation to the Benchmark Regulation can be viewed here.

Relevant Articles
Area of Interest