According to Netherlands case-law, in order to determine whether an act may be annulled on the basis of ultra vires, all circumstances must be taken into account. The determination of the object in the articles of association of the company (articles of association) is not decisive in itself. Other circumstances relevant to determining whether (or not) a legal transaction is in the social interest of the entity may be (a) group relationships, (b) reciprocity, (c) business continuity, and (d) proportionality. Although this concept of parallel debt has been used for several years, it is not without risk. In a parallel debt structure, in the event of the insolvency of the guarantor, the collateral held by the collateral custodian as a parallel creditor may be made available to the collateral provider`s creditors. In some jurisdictions, there may also be disputes regarding the validity of parallel debts: since there are only a few judicial authorities approving the structure, there is a risk of legal uncertainty as to their recognition. In the past, some commentators on continental European civil law systems have questioned the validity and applicability of parallel rules of guilt. In the recent past, however, there have been cases where common law parallel debt agreements (English law and New York State law) have been tested and confirmed in major European civil law systems (e.g. in France), which should give lenders some assurance as to the application of parallel debt provisions. In countries where the concept has not yet been tested (e.g. Germany and the Netherlands), the concept is still generally accepted. In recent years, significant steps have been taken in jurisdictions that rely on parallel debt to recognize structure and minimize associated legal uncertainty. A Polish Supreme Court case in 2009 and a French Supreme Court case in September 2011 took steps to recognize the parallel debt structure in these jurisdictions.
In addition, promising progress has been made in some other civil jurisdictions with regard to the legal recognition of the concept of security guard. These developments show that legal systems are able to adapt to the large market for cross-border syndicated secured loans. Although the borrower accepts a parallel additional stream of debts to the security officer, he does not agree to double his financial obligations. The parallel debt provision generally provides that any payment made by the borrower to the security officer in relation to the parallel debt releases the borrower`s debt to the lenders and vice versa. In recent years, significant steps have been taken in jurisdictions that rely on parallel debt to recognize structure and minimize associated legal uncertainty. A case of the Polish Supreme Court in 2009 and a case of the Supreme Court of France in September 2011 took steps to recognize parallel debt structures established in these jurisdictions under foreign law as collateral for debts subject to applicable foreign law. In other words, if, for example, English law permits the creation of a parallel debt and it can be proved to a French court that this debt is valid under English law, then the French judgment states that (subject to certain exceptions) you may provide French Droit with a security directly in favour of the parallel creditor in order to secure that debt. The parallel debt obligation creates a principal obligation towards the furniture agent and thus establishes the right of the furniture agent to demand payment of this parallel debt instrument.
The borrower/debtor then provides a guarantee to the facility agent (parallel debt obligation guarantee) and to each of the financial parties/lenders (principal debt obligation guarantee) at the same time. If a legal act performed by a Dutch company is not in the interest of the company, it can be annulled by the company (or its agent) on the basis of ultra vires. Eversheds Faasen advises you on Dutch legal issues and on the assessment of potential risks in domestic and international financial transactions and restructuring operations. We prepare legal opinions, advise on the establishment of security and can even prepare them with our team of in-house notaries. However, any proposal to include parallel debt provisions in cross-border financing, like all other elements of a cross-border transaction, should be subject to local legal advice and assessed on a case-by-case basis. Whatever the reason, the creation of parallel debt between a borrower and (usually) a facility agent is intended to address the problematic situation in which lenders might otherwise find themselves in jurisdictions where security trusts are not recognized. Often, a security guard holds the syndicated loan guarantee in trust for the lenders as beneficiaries. Under the provisions of Dutch law, it is generally assumed that secured creditors should be creditors under the secured obligation. This is not the case if an agent (non-lender) holds collateral for all lenders. By creating parallel debt in the syndicated loan, this difficulty can be solved. Of course, if a parallel debt determination is used, provisions should be included in the documentation that provide for double recovery, namely: However, a solution in the form of parallel debt has been developed.
A parallel debt settlement consists of the borrower acknowledging an additional debt owed to the security officer. This additional and independent debt exists simultaneously or “in parallel” with the debt that the borrower owes to the lenders and corresponds to the amount that the borrower owes to the lenders. The guarantee is then provided by the borrower in favour of the parallel creditor (the guarantee agent) to secure the parallel debt. The securityholder remains the same regardless of changes in the pool of lenders after syndication. It depends on the factual circumstances whether the lender should have known that the act adversely affected the interests of other creditors. In certain circumstances, knowledge of both parties is presumed (subject to evidence to the contrary). One such circumstance is that the security right (i) is created in the year preceding its avoidance and (ii) consists of the provision of security for receivables that are not due.