Cross default clause
The cross-default clause is an agreement in the form of a clause in loan agreements or bond conditions when, after a breach of contract should already occur debtor in relation to other creditors in breach of contract is without the clause-containing contractual injured has been.
General
The cross-default clause ( German third-party default clause ) is a special form of the borrower's refusal to comply with a contractual obligation in the future ( English repudiation ).
The simple default clause in international loan agreements ( syndicated loan ) or loan terms gives the creditor the right to be able to call the loan or loan amount due immediately as soon as the debtor has certain reasons for default ( debtor default ). However, if there are no reasons for default from the loan terms or the loan agreement, a loan or loan termination is not possible, even if the debtor has breached other contractual relationships. Only with the help of the cross-default clause is there a possibility of termination, so that contractual disruptions in other contractual relationships also affect the loan agreement concerned through this clause.
content
A cross-default clause regulates that a breach of contract occurs even if the obligations from the own loan agreement are not breached, but the borrower is in breach of contract in relation to third party creditors. The clause aims to save time in asserting one's own rights. The agreement of a cross-default clause enables other clauses (such as financial covenants ) or individual reasons for default in the context of the default clause to be omitted, because a call may be made if other creditors had to terminate due to their own comprehensive clauses or reasons for default. It is therefore sufficient for the obligee to concentrate on the cross-default clause and let other creditors define the remaining default clauses in their contracts.
Equal treatment
Its aim is the potential equal treatment of all creditors. The cross-default clause gives creditors the opportunity to participate in rescheduling negotiations with other unsecured creditors on an equal footing. It also prevents the debtor from unilaterally changing the repayment priority in the case of several creditors. If the debtor shortens or delays the interest and / or principal payments to other creditors in violation of the contract, this automatically triggers a right of termination for all contracts with a cross-default clause, even if these are served in accordance with the contract. In terms of content, it ties in with the “ pari passu clause ” (declaration of equality).
disadvantage
A major disadvantage of the clause , however, is that when a single loan is called in, all other liabilities of the borrower (provided they contain the cross-default clause) also become due, and this contagion can trigger a corporate crisis for the borrower. To avoid this, such clauses (can use a threshold amount english "threshold amount" ) are connected so that a right of termination by the "cross default clause" is only triggered when exceeding this threshold amount. Due to the extensive lack of transparency, especially on the credit market , creditors are largely dependent on their borrowers actually informing them about the maturity of other loans. This information obligation of the debtor arises from the contractual clauses about the substantial deterioration of the financial circumstances ( English "material adverse change" ) or the assurances ( English "representations and warranties" ).
Application of law
The cross-default clause is part of the standard LMA model contracts . Such clauses come from Anglo-American law and are not known in this form under German law. Due to conflicting legal norms , such clauses must therefore be waived when German law applies or, conversely, German law may not be used as a basis when these clauses are agreed.
Individual evidence
- ↑ Tobias Nikoleyczik, bankruptcy protection between law and contract. Alternatives to the system of a fixed nominal capital , 2007, ISBN 978-3-89936-605-1 , p. 270 ( Tax, Economy and Law 281), (Simultaneously: Univ., Hamburg, Diss., 2007)
- ↑ Lutz Krämer, Financial swaps and swap derivatives in banking practice. A civil, general terms and conditions and regulatory investigation with special consideration of the Kautelarpraxis , 1999, p. 181
