Our lawyers have wide experience in all aspects of international structured trade and commodity finance, advising on the legal and regulatory aspects of commodity-linked financing transactions, collateral control and warehouse receipt financing under various legal systems, mainly common law and civil code, counselling international organizations, governments, financial institutions and banks, raw materials producers and refiners, trading companies, exporters and other market players.

These transactions require special knowledge of local laws regarding foreign trade and exchange control, title to goods and creation of security interests, implementation of appropriate collateral control and monitoring devices appropriate to the transaction.

The agreements which we would normally recommend for use in connection with ACE professional services have been prepared by our lawyers and approved by local solicitors with a formal legal opinion confirming and warranting that all applicable laws governing the entire transaction are being complied-with and will constitute a valid, binding and enforceable legal instrument under the laws and regulations of the country involved.

The establishment of a field warehouse invariably involves the concept of bailment, in legal terms, field warehousing may be defined as the establishment of a valid bailment upon the premises of the depositor by an independent third party, thereby creating a change of possession and an effective pledge.

We provide legal opinions for the type of transaction proposed by the bank as and when required.

LEGAL OPINION

The issuer of the field warehouse receipts creates a legally independent warehouse within the borrower's premises by

• Leasing the storage area,
• Posting prominent signs giving public notice that the controlled area is operated by the field warehousing company
• Controlling movements in and outfield of the warehouses
• Installation of locks (double lock kept by ACE and the borrower) and seals, management by ACE staff, in order to issue legally valid warehouse documents (URC 522)

The principal competitor of Field Warehousing as a method whereby a corporate customer can give security over stocks and similar assets to a lender is the floating charge. However, not only does the floating charge have many disadvantages, but Field Warehousing has certain positive advantages in those areas where the floating charges is weakest. Thus:

• Field Warehousing enables the bank immediately to perfect its security. The floating charge, on the other hand, only “crystallizes” (that is, becomes fixed) if the customer goes into liquidation or makes default in payment of principal or interest or some other breach of the terms of the debenture occurs, and the bank thereupon takes some positive step to enforce the floating charge. Until such time as the floating charge crystallizes (which will, of course, often occur only when the customer is in extremis) it will be superseded in order of priority by any subsequent fixed charge unless the floating charge prohibits this and the fixed charge has notice of the prohibition.
  
  
• Field Warehousing provides the bank with both the organization and expertise to control its security: It has the guarantee of ACE that if and when security is needed it will be there intact and available to be realized. The existence of a floating charge, on the other hand, gives no such guarantee and until it crystallises will not prevent the customer disposing of all or any of the assets charged. The customer may therefore, unknown to the bank, realize his stocks and other current assets in order to meet pressing unsecured creditors, with the result that when the bank appoints a receiver the value of the remaining assets secured by the floating charge is totally inadequate.
  
  
• The bank’s security under field warehousing has priority over other creditors except ACE’s lien for its charges and the claims of a landlord levying a distress for a rent. These risks may however be mitigated by the bank guaranteeing ACE fees and landlord rent whereas the landlord will sign a waiver of lien. The floating charge, on the other hand, is subject to priority by a variety of creditors both preferential and others. Preferential debts include not only wages and salaries and national insurance contributions but one year’s taxes payable to the inland revenue (who are in practice often the largest creditor of all). Other creditors which take priority over the floating charge are the landlord levying for distress, secured creditors in respect of their specific charges (as mentioned above) and judgment creditors who execute before the floating charge crystallizes.
  
  
• A security perfected under Field Warehousing provided that it is not a fraudulent preference is unaffected by a subsequent liquidation however soon it may follow.
  
  
• A Floating Charge can only be granted by a corporate customer.
  
  
• A floating charge has to be registered  which may affect the customer’s credit rating and may give information to third parties which the customer would not wish to be disclosed.

Companies are frequently subject to restrictions in loan agreements or debenture trust deeds which prevent them giving charges. In some cases this prohibition may not extend to pledges, depending on the terms of the particular restriction.