IMD Corporate acted for an overseas private equity investment firm looking to invest in the UK real estate market by virtue of providing financing to a UK developer and acquiring securities held by a UK bank in a transaction valued at over £2million.
The complexity of this transaction was due to the cross-jurisdictional nature of the parties involved, including additional financing being provided by an overseas bank and the acquisition of a number of securities, and was layered with additional new securities arising as a result of this transaction.
Our client’s goal was to inject financing into a luxury property development in London, which was being developed by a UK based company and was on course for completion. Our client had already invested sums by virtue of a mezzanine loan, which drove the additional injection of financing to protect the initial investment.
In addition, our client wanted to ensure that the other funder of the development, a UK financial institution, was no longer involved in the project, however re-financing was not an attractive option to our client. Consequently, the deal involved purchase of the debt and various securities from the UK bank at closing. In addition, the securities provided insufficient protection, as a result our client sought additional securities from the property developer which were provided.
Due Diligence refers to the comprehensive evaluation of a business or any project or development that business is currently engaged in. This is particularly critical when dealing with property developments as there are many pitfalls which may derail the transaction or leave the investor with assets which require further financing. Something not entirely ideal. This involves a meticulous investigation into all relevant aspects of the developer as well as its project and its assets. This process typically includes reviewing financial records, compliance with regulations, asset verification, and assessing operational risks, various surveys and inspections being carried out. The primary goal of due diligence is to ensure that all stakeholders have accurate and complete information before finalising any transaction.
This was a substantial element of the process conducted and involved a number of surveys being carried out on the land, works and design of the development. In addition, financial position of the developer and the profitability of the development came into sharp focus as it was critical to our client to ensure that the investment was secure. In addition, we examined the legal standing of an entity, the legality of its operations, and compliance with applicable laws and regulations. Such egal scrutiny ensures that the agreements and contracts involved in a transaction are enforceable, that rights and obligations are clearly defined, and that there are no legal impediments that could jeopardise the transaction. It provides a crucial safeguard against potential legal disputes and liabilities, thereby protecting the interests of all parties involved in the transaction. Through legal scrutiny IMD corporate team ensured that all findings complied with, safeguarding our client’s investment.
The negotiation phase was marked by discussions over the terms of debt and securities transfer and the eventual structure of the transaction. Through careful negotiations, an agreement was reached where the overseas investor would take over all the securities previously owned by the bank. This arrangement allowed the bank to withdraw from the project and vacate any priority or enforcement rights it may have had in a way that was financially and legally secure. In addition, the bank conceded to obligations to take all such steps post-completion as our client may have required in respect of any equitable securities.
The legal teams facilitated these discussions, ensuring transparency and adherence to corporate finance law. Resolving disagreements was crucial, as it allowed our client to take a leading financial role in managing the property developer’s assets.
At completion, our client acquired all securities against the property developer, both in equity and law, becoming the only creditor and holder of all securities. This move was not just a financial transaction; it also included transferring all related legal rights and obligations, such as debentures and charges over shares.
To secure our client’s position additional securities and guarantees were put in place. These measures were critical in protecting our client’s expanded asset base against potential defaults or market fluctuations. The legal team’s role was instrumental in articulating these guarantees, ensuring they were robust and enforceable under UK law.
The case highlights several key takeaways for practitioners and stakeholders in corporate finance law:
This case study not only highlights the legal and financial operations involved in complex corporate transactions but also illustrates the critical role of legal expertise in guiding and securing investment deals. The successful resolution of the case provided our client with a significant base in the UK market, demonstrating the effectiveness of strategic legal planning and execution. This analysis shows the importance of using comprehensive legal methods to manage the complex world of corporate finance.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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