Loan Agreement Governing Law

152 Another factor – a Member State`s desire for a continuous flow of MDB loans – serves as a strong incentive to prevent or resolve disputes informally. For references to this important practical consideration, see W. Paatii Ofosu-Amaah, The World Bank-Legal Aspects of Its Recent Lending Activities, in 2 Commercial Transactions, note 89, at 305, 309 (stating that “[t]he main sanction maintained by the World Bank [to prevent the borrower from acting against the bank`s expectations] under an “Asian Development Bank” loan contract , supra note 143, at 57-58 (as part of ADB operations, explains the practice of “quasi-conditionality” which is “the practice by which the Bank requires that loan agreements be respected [to the satisfaction of the ADB] before the processing of another loan can be advanced or concluded”). However, the existence of this practical recital, which stems from the generally superior negotiating position of an MDB, does not diminish the importance of legal certainty as a means of preventing disputes between the MDB and its borrowers. Businesses or financial alliances govern the borrower`s financial situation and health. They define certain parameters in which the borrower must operate. The borrower`s auditors should be asked to view their contents as soon as possible. The dates on which these companies are subject to review should be subject to scrutiny, as should the separate financial definitions applicable. Financial commitments are a key element of any facility agreement and are probably the most likely to cause a default event if they are breached. Stronger borrowers can negotiate a right to resolve violations of financial pacts, for example by investing more money in the business. This is called the equity cure. 16 The threats to deny repayment of World Bank loans referred to in Note 11 all appear to be based on political and economic reasons rather than legal reasons. However, as stated in text 102-05 infra, unprecedented legislative changes are under way in many former Soviet republics.

In this climate of radical legislative change and uncertainty, the likelihood that internal pressure in the event of non-payment will occur in the form of legal challenges is halted, as the World Bank and other MDB loans in these countries are increasingly required to repay. For a review of certain other specific disputes that might arise if an MDB loan contract was expressly or implicitly subject to local law, see infra, Part V, of this article. There will also be delay provisions for breaches of the convention itself. They may grant time for remedial action on the part of a borrower and, in any event, apply only to substantial infringements or violations of the main provisions of the agreement. The provision for non-payment usually includes additional time to cover administrative or technical difficulties. Insolvency defaults should also provide reasonable time frames and include appropriate waivers for solvent restructurings, with the lender`s agreement.

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