Legal advice is often obtained as part of a banking transaction, but its importance is often overlooked. This blog explores the purpose of legal advice and when a lender may need one. Legal advice may include, for example, the valid existence of the Company, the valid issuance of shares to investors under applicable corporate law, compliance with certain laws relating to the transaction, the applicability of transaction agreements and, in some cases, the existing capitalization of the Company. Legal opinions do not express opinions on all aspects of the company and its operations, but focus on a specific range of corporate and securities elements. When preparing an expert opinion, the lawyer must take into account who can rely on the expertise. Since the Hedley Byrne case, it has been clear that anyone whose opinion writer knew or ought to have known that he or she would rely on the expert opinion can bring an action against the lawyer if the report was written negligently. The lawyer should therefore insert a restriction that the notice is made available to addressees for their sole use and cannot be made available to another person by them and that no other person can rely on the notice. A fairly recent study by the ABA`s Business Law Section on private mergers and acquisitions in Canada shows a sharp decline in the number of legal opinions on such transactions. The study, which covered 64 transactions ranging from $5 million to $100 million from January 2010 to December 2011, showed that the percentage of transactions requiring legal advice from the target company`s lawyers increased from 72% in 2008 to 55% in 2011.
The decline in the comparable study for U.S. transactions was even more pronounced, from 58% in 2009 to 27% in 2011. In general, there will be a list of assumptions on which the preparation of the opinion is based. All assumptions and aspects on which they are based must be indicated in the opinion. Of course, assumptions should only be made in respect of facts that the lawyer knows or has reason to believe are accurate. To some extent, the use of assumptions stems from cost considerations – a client will often have considerable knowledge of the facts of the case in question, but will not want to pay for the service required to verify those facts. Several areas of business practice require formal legal advice from lawyers. The legal aid scheme in the United Kingdom requires legal advice demonstrating a reasonable chance of success before the Legal Aid Board funds an application.
Professional negligence insurance policies often require the advice of legal counsel before the insurer is required to pay for an alleged claim (sometimes called a QC clause if it is to be the opinion of a senior lawyer). A legal opinion usually includes the following: The Legal Advisory Commission of the General Synod of the Church of England exists to give advice on non-contentious legal matters of general interest to the Church referred to it by the Synod or one of its houses by one of the National Church Institutions (NCI). by the legal secretaries of the Church (diocesan officers and chancellors) and by other ministers such as archdeacons and diocesan secretaries. From time to time, the Commission`s recommendations have been published in consolidated form in the form of legal opinions on the Church of England, which have been authoritative in the various areas of canon law they cover. Agree with the text of the notice – This is particularly important in the context of a cross-border transaction where legal advice may be required in multiple foreign jurisdictions. In these circumstances, it will be important that the wording of any form of comment is agreed upon by all parties as soon as possible in order to avoid delays in completing the transaction and to ensure that all relevant issues are taken into account. Early agreement on the text allows the law firm preparing the opinion to ensure that the text is adapted to the client`s purposes and to take into account the scope of the research to be carried out. Date of opinion – If the opinion is to be made for the purposes of a transaction, it must be dated on the same date as the transaction documents to ensure that it reflects the law or matter being assessed at the date of the transaction. Documents reviewed and requests – The legal opinion identifies the documents that were reviewed for the purpose of preparing the opinion.
These generally include transaction documents (i.e., a facility agreement and collateral documents in connection with a financing transaction), incorporation documents of the Company for which legal advice is obtained, minutes of the Board of Directors or other authority of the Company, and any research conducted against the Company. With respect to transaction documents, the notice shall also indicate whether they are signed originals, copies or a final draft. As regards searches carried out in relation to the Company, these would normally involve a search of the records kept at Companies House and the Central Register of Liquidation Applications. Depending on the transaction, it may also be necessary to search the land register and the trademark register. Regardless of the search, it is important that the notice indicates the time and date of the search and, in the case of a business search, confirms whether the search is an update of a previous search. Legal advice should always be considered when a transaction involves a foreign element on which UK lawyers cannot advise. Background – This section of the legal opinion usually provides general information about the transaction and the documents on which the notice is issued. There will also be a statement that the notice is limited to English law and no other jurisdiction.
The reason for this decline is that commonly expressed points, such as the existence and status of the target company at closing, proper approval and delivery of transaction documents and the like, are issues that can often be fulfilled through due diligence. As due diligence becomes more robust and electronic search becomes more efficient, the need to rely on legal advice decreases. Legal advice confirms a party`s ability to contract and perform its obligations under the transaction documents. It is also important to recognize the risk of liability that a lawyer accepts when giving legal advice. This risk is not limited to financial problems, but can also affect the lawyer`s reputation. With this in mind, follow the “golden rule” when seeking legal advice from an opposing lawyer – don`t ask for the inclusion of a particular opinion that you wouldn`t provide yourself in similar circumstances. Internal compliance procedures – Most international law firms have an internal review procedure that must be followed before a statement from that firm is issued. It is not uncommon for at least two partners who are not involved in the transaction or project to be required to review and approve the statement prior to its publication. Significance to a law firm in the context of an expert opinion is the extent to which third parties who are not clients of the firm can rely on documents and liability issues (as noted above) that may arise if the expert opinion is subsequently found to be inaccurate and/or misleading.
The liability issues to be considered by the company in such circumstances may differ from those that arise with respect to a customer of the company on the basis of the company`s opinion. In the United Kingdom and other common law countries, a legal opinion also refers to written legal advice on a point of law issued either by a lawyer or solicitor (often referred to as a “lawyer`s opinion”) or, occasionally, by a senior judicial officer, such as an Attorney General. If the opinion is given by a foreign lawyer or law firm, it is generally referred to as “foreign legal advice”. A legal opinion informs the addressee of the legal effect of the conclusion of the proposed transaction. For example, in the context of a cross-border transaction, lawyers in a foreign jurisdiction may advise on the validity, applicability and compliance of a settlement document with the local law of that jurisdiction (e.g. local registration or stamp duty requirements). In cross-border transactions, the provision of legal advice is often a condition that must be met before an advance is granted. Legal advice will attempt to assure the lender that the transaction documents: (i) bind the parties to the transaction; and (ii) be enforceable against such parties.
A legal opinion identifies the legal risks and issues that the recipient should address as part of the transaction. For example, a notice may identify certain documents that have not been properly applied and are therefore unenforceable. The beneficiary may use the points mentioned in the notice to carry out further investigations and, depending on the results of these investigations, decide whether other forms of protection (e.g. guarantees and compensation) are necessary.