Wednesday, November 04, 2009

Legal Aspects relating to Financing Business Projects

  • Financing  Business Projects are very interesting from the legal aspects for a Business Lawyer. From my experience in practicing as as  Business Corporate Lawyer in Indonesia, we are frequently involved in giving advise and assisting our Clients to draft or review their financing arrangement which are covered by a Loan Agreement. This  was  being experienced by the Writer as a Business Lawyer since Year 1980 ies, starting as a Junior Lawyer who  assisted the Senior Layers  in drafting the finance transactions and arrangement relating to financing their  Vessels including air planes 
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  •  What makes us attractive to such finance arrangement as Business Lawyer is because there are several  elements that have to be taken into considerations. Business Lawyers must be aware that before the Debtors are approved to get this  Funds from the Creditors, based on  the Indonesian Business common practices, such Creditors  shall firstly  conduct the Legal Due Diligence,  which shall be conducted by Independent Lawyers; This Legal Due diligence covers the checking of all the corporate documents  Licenses, Agreements with other Parties, including any Credit Agreements and its Collateral, the amounts of Labors, The Company Rules, The Employment Agreements, Title ownership of its assets, Certificate of Lands/Buildings, the potential Litigation or Arbitration cases ( if any) which involved such Debtors. Based on the Legal Due Diligence, the Independent Lawyers may be requested to make the Report Result of their Legal Due Diligence and may be requested to issue and make a written Legal Opinion addressed to the Creditor/Bank
  • Besides the Legal Due Diligence, the business prospective of such Investor including the technical aspects are also being conducted by the Bankers as the Creditors. The Creditor will usually request the Investors to make their business presentation, and business cash flow projection  in order to get the overall and comprehensive business prospective in particularly, the cash flows, cash out and cash in streams of such respective credit applicant, to ensure the repayment of the Loan. The most significant element in business is the trust worthiness of such loan applicant, and the capabibilty to repay any and all of the Loan Amount being granted by the Creditor.
  • In other words, the most relevant questioned raised by the Bankers or the Financiers are whether the applicant's cash flow prospect are bankable or not. These initial steps are really important and significant, because once the Monies or the Funds are being disbursed by the Bankers in accordance wityh the agreed repayment schedule as shall be stipulated under the Loan Agreements , the Bankers shall be in the risk of non- repayment or default of payment by the Debtor.




  • In order to secure the full repayment of the Loan by the Debtor to the Creditor, there are several collateral known and recognized under the Indonesian Laws and regulations among others  the Fiduciary upon the movable as well as immovable assets, the Hak Tanggungan (or in other countries are known as Mortgage) upon the land owned by the Debtor.The Fiduciary Deeds shall be registered in the Fiduciary Office, at  the places where the assets are located.
  •  Once the Pre-Condition under the Loan Agreement are being completed, by the Debtors, as being advised by the Business Lawyer, the Bankers will disburse the amount of Loan in accordance with the disbursement schedule under the Loan Agreements pursuant to the mechnisme of drawndown under such Loan Agreement.  The actual disbursement of the Monies made by the Bankers to the Debtor are the most significant matter for the Debtor, since this Loan is really needed by the Debtor to perform its business operations. Normally there will be a certain Grace Period granted to the Debtor before repayment obligation of the Loan are to be made by the Debtor, pursuant to the terms and conditions of the Credit /Loan Agreement.   
  • If the progress  track record and the outcome of the business is a successful one, than such respective success Investors has shown a good re- payment loan performance , and the Bankers shall be willing to offered again further loan to such respective Debtor. From the Writers experience as a Business Lawyer who frequently assisted Clients on seeking funds from Banks to support their business operations, it shows that the Bankers may also need some expertise within themselves to understand the business culture or business nature of our Clients. If our Clients happens to be business players in the oil, gas or Mining sectors, the Bankers may  need some education from the oil/gas and mining business players as to the nature of the oil/gas and Copper Mining or Coal Mining business operations including the exposed risks that might occur and the laws and regulations surrounding the business nature in such sectors.
  • The Business Lawyer must advise the Bankers, that Banker  who are granting loan to Oil/Gas or Mining Companies conducting operations in Indonesia, must fully be aware that the oil/gas as well as the minerals which "had not yet passed the point of export", cannot be secured as collateral for the repayment of the Loan or Financing transactions, since such minerals/coal and oil and gas are still owned by the People of Indonesia based on the Concept  adopted under the Indonesian Oil/Gas Laws as well as the Mineral and Coal Law.Thus we have to remember that under the Indonesian Legal system regulating the oil/gas and General Mining sectors, the Oil/ Gas Product  as well as the Mining  Products may only be owned by the Investors, if such product already passed "the point of export", where transfer of title on such oil/gas product occurs.
  • Accordingly,  the Bankers have to really conduct the economical commercially  aspects of such Debtors business, which may need some inputs from the technical people who are expertise in giving ideas and inputs on the oil/gas and minerals/coal deposits in the Oil/Gas and Mining Block in Indonesia.
Agung Supomo Suleiman
Partner Law Firm Suleiman Agung Co
AGUNGSS BUSINESS LAWYER NOTE

BUSINESS LAWYER Jakarta, Indonesia,
30 October 2009

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