Ontario Opinions in Financing. Lisa Mantello October 11, 2012

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1 Ontario Opinions in Financing Transactions Lisa Mantello October 11, 2012

2 Local sources of guidance The Toronto Opinions Group (TOROG) A group of lawyers, primarily practicing in the Toronto office of larger Canadian firms, that meets to develop best practices regarding transaction opinions, as well as to produce memos and precedent opinions Personal Property Security: Opinion Report (the Green Book ) Written by a committee of lawyers in the business law section of the Canadian Bar Association Provides a comprehensive analysis of the issues pertaining to personal property security opinions, including proposed opinion language and a sample opinion 1

3 Reliance and duty of care Opinions are typically addressed to the lender and its counsel Opinions state that they may only be relied upon by the addressees and their respective successors and assigns, and in connection with the transaction to which they relate Duty of care Lawyers owe a duty of care to their clients in contract and tort A lender may be able to recover economic loss from a negligent misstatement in an opinion provided to the lender This may occur where the lender relied on the misstatement and such reliance was reasonable 2

4 Assumptions Opinions typically include the following assumptions: All signatures are genuine, all documents are authentic, and all natural persons executing documents have the capacity to do so Information provided by public officials or obtained through searches of government-held information is accurate, current and complete Information in officer s certificates is accurate, current and complete The description of the collateral is accurate For any security interest granted by the borrower or guarantor, value has been given and there has been no agreement to postpone the time of attachment 3

5 Due diligence and supporting materials The provider of an opinion establishes facts through its own due diligence, as well as reliance on documents provided by third parties Opinions typically list documents reviewed and investigations done Due diligence generally includes review of: Officer s certificates, including board resolutions of the borrower and guarantor. The officer s certificates should not contain statements of law, only statements of fact. Certificates and other information received from public officials Transaction documents, such as the credit agreement or security agreement Minute books, articles and by-laws of the borrower and guarantor Share certificates t of the borrower and guarantor, where a share pledge is contemplated Where facts cannot be verified, an assumption may in some cases be made as to their existence 4

6 Core opinions Incorporation and existence of each borrower and guarantor Corporate power, capacity and authorization (by all necessary corporate action) of each borrower and guarantor to execute, deliver and perform its obligations under the transaction documents Authorization, execution and delivery of the transaction documents Enforceability of each transaction document against the borrower and guarantor in accordance with its terms Creation and validity of the security granted in favour of the lender over the present and future assets of the borrower and guarantor 5

7 Core opinions (continued) All registrations necessary to preserve the lender s security have been made Authorization and enforceability of any pledge and potential transfer of shares of the borrower or guarantor to the lender Share capital of the borrower or guarantor, where the transaction includes a pledge of the shares of the borrower or guarantor to the lender Perfection by control of security granted in favour of the lender in investment property under the Securities Transfer Act (Ontario) 6

8 Qualifications Opinions typically include the following qualifications regarding enforceability of a debtor s obligations: Insolvency laws regarding the enforcement of creditors rights and other similar matters Availability of equitable remedies, such as specific performance and injunctive relief, in the court s discretion General equitable principles, including those related to potential conduct of the lender, such as undue influence or estoppel Any provision of the transaction documents that is illegal or unenforceable, such as a provision that is inconsistent with the applicable Personal Property Security Act Limitations contained in the applicable Limitations Act Opinions generally also include qualifications specific to the particular transaction, such as certain registrations of security that were not made 7

9 Questions? 8

I. Examinations. Re: Loan from X Bank (the "Lender" ) to Y Corp. (the "Borrower" ) pursuant to a Credit Agreement (the "Credit Agreement" ) dated [0]

I. Examinations. Re: Loan from X Bank (the Lender ) to Y Corp. (the Borrower ) pursuant to a Credit Agreement (the Credit Agreement ) dated [0] LAW SOCIETY OF UPPER CANADA Continuing Professional Development 3" Annual Business Law Summit May 15, 2013 Prepared for educational uses only. This is a very basic financing opinion under the Ontario PPSA.