Banking hot topics Q&A

Since the outbreak of COVID-19, Blake Morgan’s Banking and Finance team has been assisting clients across a range of sectors, with issues on their banking facilities.

We have collated the commonly asked queries and below is our banking hot topic Q&A.

Q) How can banking documents be signed in a time of social distancing and working from home?

A) This depends on the document being signed:

• Contracts: Non-deed contracts can be entered into entirely by Email. PDF Format can be accepted provided that the method of execution indicates an authenticating intention. A scanned copy of a manuscript Signature would indicate that as would an electronically signed document.

• Guarantees: It is well established that a guarantee can be entered into by electronic means so the above methodology will work for “contractual” Guarantees that don’t need to be created as deeds – i.e. where the guarantee is entered into as consideration for the bank agreeing to make the loan.

• Deeds: A more tricky issue as the difficulty here may be the requirement for witnesses. For individuals and companies signing by a single director in the presence of a witness, the witness must be physically present and able to witness the signature – which might present logistical problems for a person who is self-isolating as the requirement under current law that a deed must be signed “in the presence of a witness” requires the physical presence of that witness. This is the case even where both the person executing the deed and the witness are executing or attesting the document are using an electronic signature. For companies, it is, of course possible for it to use two authorised signatories.

Issues can arise with regard to the registration of deeds at the Land Registry where presently, only wet ink signatures are acceptable.

Q) Who can be a witness, especially if it requires the physical presence of that witness and while we are all remote working?

A) It is always best practice for a witness to be independent given the purpose of requiring a party’s signature’s to be witnessed.

A witness cannot be a party to the document.

There is no statutory requirement however that a witness must be independent. A spouse, civil partner, a family member or a friend can act as a witness. It is best, however, to confirm this arrangement with your lender so that it doesn’t cause any problems at completion!

Q) Can I witness a document if I see a signatory signing over a video link, for example via FaceTime, Zoom?

A) No! A witness must be physically present in the same location as the signatory.

Q) A company’s accountants have caveated the company’s accounts or are refusing to sign them off?

A) We have seen a rise in these issues in recent weeks. The result of the former arising was that the accountants caveated the accounts that they were signing off and finalising to alter the going concern basis on which the accounts were prepared. This resulted in a flag being raised at Companies House which affected the credit rating of that Company. The Company’s accountants filed the company’s accounts at the earliest opportunities. A solution to this would have been for the company to hold on until clarity on the current situation has been obtained.

On the second point, a company’s accountants refusing to file accounts could result in a breach of a financial covenant resulting in an event of default in a facility agreement. In these circumstances, a waiver letter (if appropriate) could be prepared waiving the breach of the facility agreement and/or if required an applicable testing requirements or failures.

Q) What about directors’ duties? Will I be in breach of my directors’ duties if I incur further borrowings?

A) The Government life boats are still being worked through but fundamentally the UK Government has announced that wrongful trading provisions will be temporarily suspended for three months and will take effect retrospectively from 1 March 2020.

It is a very difficult call for directors – to shoulder more debt and hope the bounce back is sufficient to pay it off / carry it medium term or close the doors.

The challenge of course is that no one knows how long the UK will remain locked down, nor do we know whether we will have another lock down later in the year for example if there is a second spike.

Current evidence is that directors will take up the loans in droves and to rely on the very favourable repayment terms, hoping that they can pay them off / refinance and push out repayment dates in the medium term. Hopefully for the vast majority of businesses that will work, but for others it could result in difficult times ahead and therefore personal risk for the directors.

It’s a tough call and each case will be different with their own particular circumstances.

Please contact Katherine Tan or any other member of our Banking and Finance team with any queries you may have on the banking hot topics or any other finance matter.