Re: Legal Opinion on joint venture agreement and subsequently formed private limited company by Mr. X and COMPANY 1.
We refer to your letter dated February 26, 2008 on the above subject.
On perusal of your letter, it appears that Mr. X has entered into a joint venture agreement (the JVA) with Company 1 (COMPANY 1) and subsequently formed a private limited company i.e. Green Delta Aims Ltd. (the Company) for construction of a multi storied building on land owned by Mr. X and COMPANY 1 equally. Mr. X has approached BANK 1, Gulshan Branch (the Bank) to allow him credit facility for ongoing construction works of the building against his portion of land as security.
You have provided us with the Memorandum & Article of Association of the Company and the JVA executed between COMPANY 1 and Mr. X.
In these circumstances, you have requested us to provide our legal opinion regarding accuracy of the JVA and subsequent formation of the Company considering the approach of Mr. X to extend credit facilities protecting the Bank’s interest in perpetuity.
For clarification of the issue, it appears that the Bank has been approached by Mr. X singly to allow him credit facilities and as security he has offered his portion of land. In that case the borrower shall be Mr. X and therefore the status of the JVA and the Company is not relevant for granting him the credit facility.
However in such situation we are of the opinion that the Bank should consider the following security structure for protecting its interest in perpetuity:
1. A legal mortgage of the property owned by Mr. X along with his interest on the building provided that:
a. The single unit building has been clearly demarcated between COMPANY 1 and Mr. X in a practical manner so that the same are saleable. The agreement should be in writing and registered with the relevant Sub-Registrar of Lands,
b. A letter from COMPANY 1 executed by an authorized signatory acknowledging the awareness of the loan taken by Mr. X and the mortgage of the title ownership of his part of the land and building to the Bank, agreeing that they will have no objection to the foreclosure, sale, transfer or lease of the mortgage property by the Bank in case of default by Mr. X,
c. A registered Power of Attorney for sale of the mortgaged property, and
d. Mr. X will deposit the original property documents and all other property document in connection therewith with the Bank.
2. A lien on all his shares in the Company,
3. A personal guarantee securing the loan amount supported by a net worth statement.
4. Corporate guarantee(s) of any viable companies (provided that third party guarantee is permissible under the Articles of Association) owned by Mr. X or a lien of shares of such company or companies,
5. A power of attorney to be executed by Mr. X for collection of any rents, payments, sale proceeds or deposits from any purchasers, potential purchasers, lessees and such other third parties in connection with the building space to be owned by Mr. X,
6. Until all liabilities are discharged, all income from sale, rentals or other sources in connection with the building space to be owned by Mr. X will be routed through the Bank and the Bank shall have a right of set off over such account in case of default, and
7. Other customary security documents.
If you have any further inquiries please do not hesitate to contact us.
All papers/documents referred to us are returned herewith.
For: “The Lawyers & Jurists”