Counterparties may be unfamiliar with the purpose of a process agent in a cross-border transaction and why appointing one is necessary if they have not worked on a financing that requires such an appointment.
As a reminder, a process agent is appointed in financing agreements, often to comply with lender requirements to ensure that any legal action in which court papers may be served on the borrower or related parties in the financing agreement are received in the jurisdiction designated in the governing law provisions of the finance agreements.
As the counterparty, what key elements do you need to consider when the borrower or the obligor is appointing a process agent for your commercial transaction, given that such an appointment is made solely for your benefit; to serve legal process to these parties in the event of default?
Appoint a Process Agent for the Term of the Transaction
When appointing a process agent, the counterparty needs to make sure that the process agent is available throughout the entire term of the transaction. As such, it is common for lender counterparties to insist on appointing a process agent on an irrevocable basis for the life of the transaction.
For instance, if a process agent is only appointed for the first year, there’s no guarantee that the process agent will be available/contracted for the remainder of the transaction.
Ensure Prepayment for the Entire Term
Lender counterparties typically require the borrowers or appointing parties to prepay the process agent service fees for the full term of the transaction to make sure the process agent appointment remains intact for the entire duration. This is to ensure that the failure of the borrowers or appointing parties to pay the renewal bills for subsequent years will not result in termination of the process agent’s engagement. This is especially important if there are any defaults, legal notices or service of process sent to the process agent to gain access to the courts in the jurisdiction that governs the financing agreement.
Process Agent Appointment as a Condition Precedent
As part of the finance agreement, there are certain conditions that need to be in place and met before a lender releases funds on a loan. As such, including the appointment of a process agent as a condition precedent is an important step before closing a deal.
Typically, it is the borrower who is responsible for engaging the process agent. However, since it is a lender requirement, the lender has the right to coordinate the appointment of the process agent if the borrower does not do so. There have been instances where the borrower parties have failed to appoint a process agent required contractually and the counterparties have taken it upon themselves to secure the appointment of process agent to act for the borrower parties, if such a provision has been included in the contract. A recent ruling demonstrates the importance of process agent clauses in cross-border commercial contracts and the right of counterparty if the borrower parties fail to fulfil this condition precedent. In the case of Banco San Juan Internacional Inc. v. Petróleos De Venezuela SA [2020] EWHC 2145 (Comm), the Court upheld the right of the counterparties (the lender in a Credit Agreement) to appoint a process agent on behalf of the borrower when they have failed to do so themselves. The Court found that any other interpretation would result in the lender's right of appointment being “entirely nugatory and purposeless”.
Choose a Process Agent That Understands Its Role
Lender and borrower counterparties should ensure they are engaging with a process agent that understands what they should and should not receive. The named process agent should only receive and forward notices of process related to the financial transaction — and not other legal actions served against the borrower.
If the process agent receives legal papers unrelated to the financing agreement, it may result in the borrower incurring costs and spending time to bring an action in the court in the jurisdiction where the legal papers were served to have the matter dismissed due to improper service which can be a timely and costly effort.
In addition to the importance of engaging a process agent who understands their role when they receive any legal papers, it is equally important to work with a process agent who can ensure that the appointments are set up in accordance with the financing agreements in advance of closing and, most importantly, are available to you to answer any questions you may have related to their role.
Notify the Process Agent of Deal Term Changes
Counterparties will need to ensure the process agent is notified of any changes to the financing agreements or transaction that would affect the terms of the process agent appointment. This could include changes in appointing parties (i.e., additional guarantors), an extension of the term of the finance or restructuring of the deal terms and so on. The process agent appointment would therefore have to be amended to match the new deal terms.
What More Should You Look for in a Process Agent?
Appointing a process agent for a financial transaction is just one of many important items that must be completed as a condition precedent before releasing funds on the closing date.
But what specifically do you need to look for in a professional process agent?
From flexibility and responsiveness to trust and confidentiality, a professional process agent is knowledgeable about the various types of legal proceedings and understands the urgency and steps that must be taken upon receipt of such proceedings.
Download our process agent white paper to find out more about the importance of appointing a process agent for your cross-border financial transactions.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
