The Negative Pledge Agreement is a fundamental document in corporate financing arrangements under South African law, typically used alongside facility agreements or loan documents. It serves as a critical protection mechanism for unsecured lenders by preventing borrowers from granting security interests over their assets to other creditors, thereby maintaining the lender's relative position in the creditor hierarchy. The agreement becomes particularly important in scenarios involving substantial unsecured lending, corporate group structures, or complex financing arrangements. It must comply with South African corporate and financial services legislation, including the Companies Act 71 of 2008 and Financial Sector Regulation Act 9 of 2017, and typically includes detailed provisions on permitted exceptions, monitoring requirements, and enforcement mechanisms.
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1. Parties: Identification of the borrower making the negative pledge and the beneficiary (typically a lender)
2. Background: Context of the agreement, typically referencing the primary loan or facility agreement
3. Definitions: Key terms used in the agreement, including 'Security Interest', 'Permitted Security', and 'Assets'
4. Interpretation: Rules for interpreting the agreement, including principles of construction
5. Negative Pledge: Core covenant not to create or permit to subsist any security interest over the assets
6. Permitted Security: Exceptions to the negative pledge covenant - security interests that are allowed
7. Representations and Warranties: Borrower's confirmations regarding existing security interests and capacity to enter agreement
8. Duration: Period for which the negative pledge remains in effect
9. Remedies: Consequences of breach and available remedies to the beneficiary
10. General Provisions: Standard boilerplate clauses including notices, amendments, and governing law
1. Positive Obligations: Additional affirmative covenants, used when the lender requires specific actions from the borrower
2. Information Undertakings: Obligations to provide information about assets and security, included for higher-risk borrowers
3. Further Assurance: Commitment to take additional actions to give effect to the agreement, used in complex transactions
4. Security Value Protection: Provisions to maintain the value of unsecured assets, included for significant lending relationships
5. Cross-Default: Provisions linking breach to other agreements, used in complex financing structures
6. Costs and Expenses: Allocation of costs, included when significant expenses are anticipated
1. Schedule 1 - Existing Security Interests: List of all current security interests that are carved out from the negative pledge
2. Schedule 2 - Form of Compliance Certificate: Template for periodic confirmation of compliance with the negative pledge
3. Schedule 3 - Specified Assets: Detailed list of assets subject to the negative pledge, if not all assets are covered
4. Appendix A - Permitted Security Matrix: Detailed breakdown of permitted security interests and their conditions
5. Appendix B - Reporting Requirements: Detailed requirements for periodic reporting on assets and security status
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