Check the construction language and the description of secured obligations in the finance documents.
If a finance document is referenced in a guarantee or security document, without specifying that it is “as amended, restated, supplemented or otherwise modified from time to time”, the meaning of the incorporation by reference is ambiguous. A court may, depending on the drafting, interpret the incorporated document as being frozen in time when it was incorporated by reference, especially if a subsequent amendment did not involve all the original contracting parties.
If the security or guarantee refers to the finance document(s) as “amended, restated, supplemented or otherwise modified from time to time”, then the security or guarantees would extend to secure and/or guarantee the debt obligations as so amended, restated, supplemented or otherwise modified without the need for further action. However, in practice whenever a finance document is amended, restated or supplemented, even where proper construction language is used, it is best practice to obtain confirmations or reaffirmations of guarantee and security from the relevant guarantors or loan parties.
In the Province of Quebec, any amendments made to reflect to the transition from LIBOR to a risk-free rate in the principal finance document (for instance, any credit or facility agreement) would not in and of itself require additional security to be granted under Quebec law or amendments to the existing Quebec security so long as the security refers to such finance document “as amended, restated, supplemented or otherwise modified from time to time.
There may be other reasons for taking new security in the Province of Quebec as a result of certain amendments made to the finance document (such as a novation of the underlying debt obligations resulting from, for instance, a change in the borrower or the lender). In addition, in cases where the Quebec security is amended and the security was initially granted by way of a notarial deed of hypothec, then the amendment to the security may also need to be signed by way of a notarial deed.
|