Although the Covid-19 pandemic seems to have been overcome, the direct consequences of the health crisis have yet to be seen. In the judicial system it is expected that the processes will slow down as a result of the distancing norms, capacity of attention of the institutions, among others. For this reason, many organizations and individuals and legal entities are choosing to establish risk prevention mechanisms in their negotiations to avoid unpleasant surprises. Today we will talk about the aspects that should be taken into account when closing a financial agreement in times of post pandemic.
Current financial and legal context in Latin America
The United Nations Economic Commission for Latin America and the Caribbean in its special report on the Financing for development in the era of the Covid-19 pandemic and beyond.. They describe how in Latin America in 2020, 2.7 million businesses will close and the number of unemployed will increase to 44.1 million people. This leads to a sharp contraction in investment as the capacity for capital accumulation and the opportunity for growth may be delayed by the effects of the pandemic.
While the economic impact is devastating, the legal repercussions have also been felt by thousands of law firms in the region. Therefore, it has been necessary to mitigate the economic effects through different strategies such as suspending the issuance of temporary contracts, taking the activities of courts and tribunals to the digital area, and other activities that promote the proper functioning of the processes.
In view of this situation, legal advice on the negotiation of financial agreements must be oriented towards the continuity and optimization of the new work systems. That is why Alan Aldana & Abogados in order to promote risk management in financial agreements in times of post pandemic, we are going to share two specific tools for negotiation.
Adding problem resolution mechanisms to the contract
Conflict resolution mechanisms or methods are basic for an organizational structure to effectively solve any problem. In these post-pandemic times, extrajudicial mechanisms have become popular, which in the first instance do not depend on the decisions of judges or prosecutors, but on the willingness of the parties. This is fundamental to carry out a good negotiation, and to be able to establish the basis for other tools for risk prevention.
They are applied through the planning and evaluation of the structural elements of financial agreements. By determining the advantages and disadvantages of each party, risk prevention becomes efficient in the negotiation. In this sense, mechanisms are established regarding the resolution of conflicts through a third party, adversarial modalities in case of a dispute, among others.
Establish clauses Pari Passu in financial contracts
The term Pari Passu is a Latin expression meaning "with equality", so legal terminology uses it to mean "on equal terms". These clauses are focused on protecting the interests of both the lender and the borrower. They establish guarantees, commitments, and the assurance that the debtor cannot offer additional guarantees to third parties without first offering them to the lender with whom the contract is entered into.
This legal resource is used in both bilateral loans and bank loans as a risk manager. This means that it establishes the covenants and obligations of each party to the financial agreement, giving them some security against the guarantees proposed from the outset. For this purpose, the use of the Negative Pledge, whose "forbearance" clause prevents the borrower or debtor from granting guarantees to third parties, thus ensuring the creditor's right in the event of a dispute.
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