The global spread of the novel corona virus 'COVID-19' has shocked the global financial market and virtually crippled the world economy. As the spread of the virus continues seemingly unabated, the disruptions occasioned to various contractual arrangements will become more apparent. Due to liquidity challenges occasioned by the pandemic, borrowers will struggle to repay debts, which just 6 months ago perhaps seemed to be well in hand. This will increase the risk of triggering events of default in lending agreements. Borrowers and lenders ought to be looking closely at their contractual commitments and getting proactive about renegotiating loan terms where the performance of any obligations or covenants in the agreement will be affected by the pandemic. If you have a loan with a financial institution, or are looking to collect from your customer, here are some likely issues in your loan agreement, which you will need to consider.,
CAN THE COVID-19 PANDEMIC TRIGGER AN EVENT OF DEFAULT? The inclusion of 'events of default' have become standard feature in loan agreements. They are circumstances or conditions that upon their occurrence entitle the lender to certain remedies such as the right to demand for the immediate repayment of a loan and/or enforcement of the security.1 So can the COVID-19 pandemic trigger an event of default in a loan agreement? A pandemic is not recognized as a trigger of events of default in loan agreements, but it can certainly create the conditions for a payment default. The most common events of default are payment defaults, insolvency, cessation of business, cross-default, material adverse change/effect, etc. Read More
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