Common use of Effectiveness of Security Clause in Contracts

Effectiveness of Security. (a) Clauses limiting the liability of a beneficiary of a security interest in respect of an improper enforcement of security may not be enforceable. (b) The enforcement of any security interest (including any guarantee) in the Transaction Documents in an abusive manner may trigger the liability of the person enforcing the security interest or may allow the provider of the security interest to successfully challenge such abusive enforcement. (c) The Luxembourg Pledge Agreement provides that the pledge may be enforced by selling the pledged assets in a private transaction at normal commercial terms (conditions commerciales normales) for a cash or non-cash consideration. The Financial Collateral Law contains no provision on the type of consideration which should be obtained for the pledged assets nor on the moment of payment. Legal writing supports the view that the pledged assets could be sold for a non-cash consideration (to the extent that the purchase price is however expressed in monetary terms) and with the consideration to be paid on a deferred basis, but it cannot be excluded that a judge may find otherwise in which case the discharge of the Secured Obligations would arguably need to take place at the moment of the sale rather than at the moment of the receipt of the consideration and require a valuation of the non- cash consideration. (d) Only the managers of the Luxembourg Obligor and any person(s) to whom they have delegated such power are entitled as a matter of law to file documents with the RCS. The Luxembourg Share Pledge Agreement provides for such delegation, failing which the Collateral Agent would not be entitled to file any documents (such as the resolution revoking the managers and appointing new ones) with the RCS. There remains however an uncertainty whether the RCS will accept such a delegation. (e) Pursuant to the Luxembourg law dated 23 December 1998 on the monetary statute and the Banque Centrale du Luxembourg, the claims of the Banque Centrale du Luxembourg, of the European Central Bank and of any other national central bank which is part of the European System of Central Banks, arising from operations in the framework of common monetary and exchange policies, have a preferred rank by operation of law on all assets held by their debtor, either with the Banque Centrale du Luxembourg, or with a securities clearing system or any other counterparty in Luxembourg. Such claims have the same rank as the preferred claims of a secured party. (f) The enforceability of any security interest (including any guarantee) in the Transaction Documents could be affected in case of novation. (g) A floating charge would not be recognised by a Luxembourg court in relation to assets located in Luxembourg, and in the case of an insolvency of the Luxembourg Obligor, a floating charge may not be enforceable against the Luxembourg Obligor or a Luxembourg bankruptcy receiver appointed by a Luxembourg court, in relation to assets located in Luxembourg or in any other jurisdiction which does not recognise floating charges. The same applies in relation to other contractual arrangements unknown under Luxembourg law, such as powers of attorney for security purposes and the powers of any receivers (in particular after the opening of a Luxembourg insolvency proceeding) appointed under any of the Transaction Documents, subject in each case to any exceptions established by Regulation 1346/2000.