Legal Opinion on 2nd charge created on fixed and floating assets of Company 1 without NOC from syndicate term loan lenders (1st charge holder).

Mr. Z

Address….

Dear Sirs

RE:     Legal Opinion on 2nd charge created on fixed and floating assets of Company 1 without NOC from syndicate term loan lenders (1st charge holder).

We refer to your letter no. ………….. dated 10 October 2006 on the above subject.

From perusal of your letter it appears that Bank 1 (“BANK 1”) has participated in a syndicated term loan with 8 other lenders to provide finance for COMPANY 1 and for this syndicated term loan BANK 1 already has the first pari passu charge over current and fixed assets of Company 1. In addition to this syndicated term loan BANK 1 has also financed a working capital loan of Tk. 36 crore to Company 1 But the additional working capital requirement is not in compliance with the assessment of the facility agent, BANK 1 and as such BANK 1 have been reluctant to arrange NOC from the syndicated loan holders (1st charge holders).

However, Company 1has signed the 2nd charge documents without NOC from the other lenders with document waiver and a charge has already been filed with RJSC on August 30, 2006 for the working capital.

In these circumstances, you require our legal opinion on the credit risk associated with a 2nd charge created with RJSC without NOC from the other lenders and you also need our advice on your standing in case of any legal proceedings.

OUR OPINION:

The second charge for securing the working capital loan in favour of BANK 1 has been created by Company 1 If this charge has been properly executed and registered with the Registrar of Joint Stock Companies and Firm in accordance to the Companies Act, 1994, then such charge is legally valid and enforceable against Company 1 as the borrower.

Although no NOC has been obtained from the syndicated lenders (first charge holders), in an event of default situation, BANK 1 can only take benefit of its charge after the liabilities of Company 1 with the first charge holders have been fully satisfied by the enforcement proceeds of the first charge.

However, by creating the second charge in favour of BANK 1 without the NOC from the first charge holders, Company 1 has breached its covenants under the finance documents of the first syndication of which BANK 1 is also a party.

Thanking you,

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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