The huge developement of economy and trade in the last decades of twentieth century, with the subsequent rise of a strong worldwide competition beetween companies, has made the global economic environment best suitable for biggest companies, i.e. only those which, enjoying a broad network and scale economies, can compete.
This has started anincreasing number of mergers and acquisitions, in Australia and overseas: in order to complete such big financial operations, an increasing amount of money was needed by corporations. Being such amount so huge that it was impossible (and too risky) for just one bank to provide it all by itself, it was necessary for banks to arrange loans pooling their resources, their money: it was the beginning ofsyndicated loans, a peculiar expression of modern economy. It’s a loan arranged with moneys provided through a fund made with contributions by a variable number of banks.
The first question that, besides economic issues, is legally relevant about that is: “What is a Syndicate?”.
A first, descriptive, definition can be:“a syndicated loan involves an agreement by a number of banks (the “syndicate”)to lend money or provide other financial facilities severally to a borrower”. An important role in the building of a Syndicate is played by the so called arranger bank: it has, at the beginning, the duty to act for the interest of the borrower finding other financial institutions willing to take part to the pooled fund and to set the clauses of the contract which will rule the whole operation;after the conclusion of the agreement, its role change, becoming it the so-called Agent Bank, the one which manage the everyday relations with the borrower, acting for the best co-lenders’ interest.
This is still not satsfactory: as a matter of fact the syndicate’s legal characterisation is crucial in order to understand which is the legal relationship existing between its members.
What is aSyndicate in Law?
The description above need to be enriched and better defined through the understanding of the legal relationship inside the syndicate, especially that between arranger and syndicated banks, on which this paper will be more focused.
Different characterisations have been proposed and will be analysed in this portion:
Accordingto the definition provided in Parnership Act 1892 (NSW) it is a relation which exists between persons carrying on a business in common with a view of profit; the definition of a syndicate as a partnership would have relevant implications since it would establish the existence of strong fiduciary relations whithin the banks’ club.
There are some factors in a syndicate agreement pointing to thecreation of a partnership:
- the “clawback clause”;
- the holding of security by the agent bank as trustee for the other banks;
- collective decision making procedures.
Notwithstanding those elements, there many others opposing to partnership:
- a syndicated loan isn’t a whole loan arranged by several banks; it is, instead, made by several loans grouped together for administrationpurposes;
- consequently, there isn’t any proper, real profit-sharing:whilst syndicates share gross receipts, they manage their interests in participating to the loan by themselves;
- each bank has several obligations, not only the one to provide funds.
The last point is crucial since, according to Higgins’ statement it’s still necessary for a partner to participate to some extent to theprofits: although in a syndicated loans there are gross takings by the syndicate as a whole, there isn’t a liability of the entire syndicate, being all the banks responsible to the extent of their contribution to the loan and, moreover, being profits entirely an individual matter. This conclusion, supported by facts and by standard clauses of different syndicated loan agreements, is in...