102 4 Debt
that the representations and warranties under an business acquisition agreement
are incorrect).^63
Financial obligations. The choice between a loan facility and a loan agreement
and generally the choice of the type of the loan influence the financial obligations
of the parties. Both the lender and the borrower can undertake financial obliga-
tions. However, it is normal to agree on the financial obligations of the borrower
and not of those of the lender or lenders.^64
Financial obligations belong to the borrower’s core obligations. They can be
discussed in two stages.
In a loan agreement, the first stage is the taking of a loan from the lender. A
loan agreement normally provides the disbursement date or dates and last date for
the drawdown. It is a financial obligation of the borrower to ensure that he com-
plies with all the conditions precedent within the time prescribed in the loan
agreement, if any, and draws the money before the expiry of the last date fixed for
its withdrawal.
At the second stage, the borrower assumes three kinds of financial obligations.
The first financial obligation is the repayment of the loan amount in accordance
with the terms and conditions of the loan agreement. The second obligation is the
payment of interest as and when it falls due and payable to the lender. The third
obligation is the payment of other sums due to the lender under the agreement.
Whether the lender undertakes obligations that are called “financial obliga-
tions” depends on the nature of the agreement.
Where the loan agreement provides for the payment of the loan amount in lump
sum or in one instalment, no financial obligation of the lender remains to be per-
formed after the loan amount is paid by the lender to the borrower. The agreement
would thus not lay down any financial obligations of the lender.
On the other hand, if the loan agreement provides for the payment of loan
amount to the borrower in instalments, some obligations of the lender remain to be
performed on subsequent dates. But it is presumed that a lender would be in a po-
sition to discharge its obligations under the loan agreement. Therefore, no provi-
sion is added in a loan agreement covering the situation of non payment of loan
instalment by a lender.
Other financial obligations. Other financial clauses address basic questions of
payment obligations such as interest, repayment and pre-payment. The legal as-
pects of payment obligations have already been discussed in Volume II.
Purpose clause. In order to reduce counterparty risk, the lender will want the
loan agreement to state explicitly how the borrower may use the funds. In major
transactions such as takeover finance or project finance, the purpose clause is very
(^63) Gayle C, Acquisition Finance – Syndication Best Practice, Int Comp Comm L R 13(8)
(2002) p 303. See also Ferran E, Principles of Corporate Finance Law. OUP, Oxford
(2008) pp 326–327.
(^64) See Agarwal VK, Negotiation of Specific Clauses of Loan Agreements, UNITAR, DFM
Document Series, Document No 10, Geneva (May 2000).