General structuring of financing
Choice of law
What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?
Acquisition agreements: in private acquisitions, the acquisition agreement will typically be governed by Irish law where the target is an Irish incorporated company. In public acquisitions, the offer or scheme documents are governed by Irish statute and the Irish Takeover Panel Act 1997, Takeover Rules, 2013 (Takeover Rules).
Financing documents: the facilities agreement is usually based on the Loan Market Association’s (LMA) standard-form leveraged acquisition facilities agreement. Whether the facilities agreement is governed by the laws of Ireland, or the laws of England and Wales or another jurisdiction, will usually depend on the composition of the lender syndicate, although on occasion the laws of the jurisdiction of incorporation of the target company may be chosen instead. The governing law of the related intercreditor agreement usually mirrors that of the facilities agreement. The governing law of the security documents is usually determined by the location of the secured assets and the relevant obligor’s jurisdiction of incorporation.
In proceedings taken in Ireland for the enforcement of the transaction agreements, the Irish courts will generally recognise the law(s) chosen by the parties to govern those transaction agreements by having regard to the Rome I Regulation ((EC) No. 593/2008) with respect to matters falling within the scope of the Rome I Regulation.
The Rome II Regulation ((EC) No. 864/2007) has force of law in Ireland, so the Irish courts will generally apply the law(s) chosen by the parties to the transaction agreements to govern non-contractual obligations arising out of those agreements.
The Irish courts may, however, refuse to enforce foreign laws that could be considered repugnant to Irish public policy.
Submission to jurisdiction
Regarding the recognition of judgments:
- the Irish courts will generally uphold a submission to the jurisdiction of the courts of an EU member state in line with the recast Brussels Regulation ((EU) No. 1215/2012);
- subject to the provisions of the Lugano Convention (the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters signed at Lugano on 30 October 2007), the Irish courts will uphold the submission to the jurisdiction of the courts of Iceland, Norway and Switzerland unless an unconditional appearance has been entered in another jurisdiction; and
- where neither the recast Brussels Regulation nor the Lugano Convention apply (eg, US court judgments), the Irish courts will enforce the submission by the parties to the jurisdiction of the courts of another jurisdiction, and such a judgment will be enforced by the Irish courts, if the following general requirements are met:
- the foreign judgment is for a definite sum;
- the foreign court had jurisdiction in relation to the particular defendant according to Irish conflict of law rules; and
- the foreign judgment is final and conclusive and the decree is final and unalterable in the court which pronounced it.
Under article 4 of the Blocking Regulation (Council Regulation (EC) No. 2271/96), no judgment of a court or tribunal and no decision of an administrative authority located outside the EU giving effect, directly or indirectly, to the laws specified in the Annex to the Blocking Statute or to actions based thereon or resulting therefrom will be recognised or enforceable before the Irish courts.
Restrictions on cross-border acquisitions and lending
Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?
There are no restrictions on foreign direct investment in Irish companies; nor are there any ownership percentage caps based on the jurisdiction of the owner.
Acquisitions of interests in Irish regulated financial services providers (RFSPs) may require notification to the Central Bank of Ireland (CBI).
In addition, an airline seeking to obtain or maintain an EU air operating licence must satisfy the EU rules on airline ownership and control, including that nationals of EU member states own more than 50 per cent of an EU airline.
Cross-border lending to non-natural persons does not of itself trigger a licensing requirement in Ireland.
Where a letter of credit is being issued and the beneficiary is Irish, the issuer would need to be either:
- an authorised insurance company for the purposes of the Solvency II Directive (Directive 2009/138/EC); or
- a licenced bank which:
- is authorised by a competent authority in an EU Member State (and that competent authority must have notified the CBI of the bank’s intention to carry on the business of issuing guarantees and letters of credit in Ireland); or
- holds an Irish banking licence.
If the Irish borrower is a micro, small or medium-sized enterprise (within the meaning of Commission Recommendation 2003/361/EC), then if a syndicate member that is an Irish RFSP, or a financial services provider authorised in another EEA Member State to provide credit in Ireland, transfers all or part of its commitment to an unregulated entity, that unregulated entity may require authorisation from the CBI as a credit servicing firm.
For other regulatory requirements that might arise, see question 11.
Types of debt
What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?
Acquisition financing in Ireland generally involves both senior debt and subordinated debt. On occasion, mezzanine debt is provided and is a feature in private equity-funded transactions with Irish private operating companies, particularly in the growth capital space.
Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?
The Takeover Rules require that an announcement of a firm intention to make an offer (the Rule 2.5 Announcement) can only be made where the offeror and its financial adviser are satisfied that the offeror is able and will continue to be able, at all relevant times, to implement the offer. Where the consideration for the offer is cash or includes an element of cash, the offeror’s financial adviser must deliver a ‘cash confirmation’, whereby it confirms in writing that sufficient resources are available to the offeror to satisfy full acceptance of any cash element of the offer. To give this, they must be satisfied that funding is, and will remain, available for the duration of the offer. If the offeror is not ultimately able to satisfy the cash requirements, the offeror’s financial adviser may be forced to provide the financing unless the financial adviser can prove that it acted responsibly in giving the confirmation (ie, it took reasonable steps to satisfy itself that the cash was available and would be available at all relevant times).
This means that, if the offeror’s existing cash resources are to be used, the offeror’s financial adviser will need to be satisfied that such resources will remain available for the necessary period. If the offeror is a private equity investor, the offeror’s financial adviser will need to be satisfied that the offeror has the ability to draw down on its investors’ commitments.
If financing is provided by way of a new bank facility, the new facility must be signed prior to announcement of the offer and must be prepared on a ‘certain funds’ basis. This means that, for the duration of the certain funds period, the majority of potential events of default in the facilities agreement are suspended, precluding the lender from preventing drawdown. There are some exceptions to this where the default is within the control of the offeror or is of such significance that the lender could not be expected to provide the facility.
The concept of transactions being financed on a certain funds basis has become increasingly popular in private M&A transactions in Ireland, where the buyer’s financing of the transaction is unconditional (save for any conditions to the closing of the acquisition itself) and the seller will not accept any form of financing condition to the completion of a transaction.
Restrictions on use of proceeds
Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?
While the facilities agreement will generally include a ‘purpose’ clause, setting out the purpose for which the facilities are being advanced, a provision is also included confirming that the finance parties have no obligation to monitor whether the proceeds are actually applied in that manner.
If an Irish corporate borrower on-lends the proceeds to a person connected with a director of the borrower, that on-lending will need to be approved by way of a summary approval procedure before it can take place (the summary approval procedure involves a directors’ declaration (including as to solvency on a 12-month look-forward basis) and shareholders’ resolution).
Further, if a loan is made to a company for the purpose of an acquisition of shares in that company, or in its in holding company, and the company provides security for that loan, the prohibition in the Companies Act 2014 (the Companies Act) on the provision of financial assistance will be breached unless the summary approval procedure is followed. See question 15 for further information on the summary approval procedure in the context of the prohibition on financial assistance.
A payment made under a transaction agreement to, by or in respect of, a person:
- listed on or owned or controlled by a person listed on a list maintained by a sanctions authority or a person acting on behalf of such a person;
- located in or organised under the laws of a country or territory that is, or whose government is, the subject of country-wide or territory-wide sanctions (or a person owned or controlled by, or acting on behalf of, such a person); or
- otherwise a subject of or target of sanctions
then performance of certain obligations to that party, or dealing with payments to and from that party, may be prohibited under sanctions law, with any breach of sanctions law also resulting in prosecution and penalties.
What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?
Indemnities are commonly provided in respect of tax (save to the extent that there has been a gross-up), stamp duty, currency conversions, events of default, failures to pay and failures to prepay in accordance with prepayment notices.
Indemnities are also provided to both the facility agent (in respect of various matters, including the investigation of defaults and acting on instructions it believes to be correct) and the chargee or security trustee (in respect of the taking, holding and perfecting of the security package, and related matters).