Can your sofa enter into a contract? Of course not! Can a
class of shares enter into a contract? Of course not! Both
your sofa and the shares are property, not persons. Only an entity
with legal personality can enter into contracts. However, it
isn't unusual in the context of ISDA Agreements, for example,
for fund managers to name a particular corporate class of shares as
the counterparty. At times there isn't even a clue in the
agreement as to the name of the corporation that has issued the
But if you are contracting with such an entity, make no mistake
– your counterparty is the corporate entity. Practically
speaking these fund structures work by allocating assets and
liabilities on a class by class basis, with liabilities being
allocated by including limited recourse provisions in material
contracts. In other words, your counterparty is the corporation,
but you (and others contracting with the corporation with respect
to that fund) agree to limit recourse to the assets allocated to a
particular class of shares. It is these limited recourse provisions
that protect the shareholders of one class and creditors
contracting with respect to that class from being exposed to the
liabilities of the corporation contracted with respect to another
class. Without them, that siloing does not exist.
If you want to contract in the most legally accurate fashion,
the party should be named as "XYZ Corporation with respect to
the class of shares listed on Schedule A" or something
similar. It isn't really a contract "on behalf of" a
class of shares either. (I can buy new throw cushions for my
sofa, but I didn't do it on behalf of the
sofa.) That language is suggestive of an agency or
trust relationship and it isn't either of those.
It never hurts to be accurate, but am I being too picky in
insisting on legal purity in this respect? The limited
recourse provisions should, after all, strongly imply that the
corporation is the legal party. There may be other clues to this in
the documentation as well. Since this is the only legal
construct that makes sense one would hope and expect that the
parties (and ultimately a judge if it ever came to that) would
recognize that the contracting party is the corporation and
interpret provisions accordingly.
In other words, don't panic if you think you might have a
number of these in your relationships! Nonetheless, I do believe
that, at the very least, the name of the corporation should be
represented to you in a legally binding fashion. Banks should know
who they are contracting with. How are you confident about
enforceability if you don't know what jurisdiction the entity
was organized under? Will there be trade reporting issues without
accurate information? While the prospectus will usually have the
corporate name in it somewhere, the name might have changed through
corporate events and you won't necessarily find that
information without doing some digging. Also, if you have to file
any financing statements, you will need to file against the name of
the corporation, not just the fund or class name.
In my experience when contracting parties are not accurate about
the legal relationships in their documents, issues that they would
otherwise think about or deal with are out of sight and, therefore,
out of mind. Also, interpretation issues potentially arise. For
example, how will the corporate status reps be interpreted if
you've named the party as a class of shares?
I really am not too heavy with the red pen when it comes to
reviewing documents and like to think I'm not overly
nitpicky.(C'mon, lawyers have to be a bit nitpicky.) But one
thing I do think it is important to get right is the name of the
Just don't get me on the topic of contracting with insurance
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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