LAYTONS

S O L I C I T O R S

HIRE PURCHASE AND LEASING

TRANSACTIONS

MAY 2004

GUIDANCE NOTES AND PROCEDURES FOR USE IN NON-

SPECIFIC MEDIUM TICKET TRANSACTIONS

LAYTONS
S O L I C I T O R S

BRISTOL z GUILDFORD z LONDON z MANCHESTER

www.laytons.com

157627-2
 INDEX

INTRODUCTION..................................................................................................... 1
Warning on use .............................................................................................. 1
Contacts for advice in Laytons........................................................................ 1

THE NATURE OF HIRE PURCHASE AND LEASING TRANSACTIONS............... 2

Lease transactions ......................................................................................... 2
Termination..................................................................................................... 2
Accounting treatment...................................................................................... 2
Hire purchase transaction............................................................................... 2
Other similar financing instruments ................................................................ 3
Conditional sale agreement.................................................................... 3
Credit sale .............................................................................................. 3
Chattel mortgages.................................................................................. 3
The general purpose of leasing and hire purchase facilities ........................... 3
The triangular relationship of the parties......................................................... 3
Liabilities of lessors of equipment to third parties ........................................... 4
Ships and aircraft ................................................................................... 4
Product liability ....................................................................................... 5
Territorial limitations ....................................................................................... 5

CONSIDERATIONS TO BEAR IN MIND WHEN STRUCTURING A LEASE OR

HIRE PURCHASE TRANSACTION ........................................................................ 6
Standing and qualifications of the borrower.................................................... 6
Security over the transaction asset................................................................. 6
Other security......................................................................................... 6
Commercial protection of security .......................................................... 6
Security over related assets ................................................................... 6
Subleasing agreements ......................................................................... 7
Manufacturer buy-back agreements....................................................... 7
Residual value insurance ....................................................................... 7
Discounted bonds .................................................................................. 7
Insurance........................................................................................................ 7
Tax considerations ......................................................................................... 8
Tax depreciation allowances .................................................................. 8
UK first year allowances......................................................................... 8
UK writing down allowances................................................................... 8
UK writing down allowances and finance lessors................................... 8
Use of first year and writing down allowances........................................ 8
Lease rental payments ........................................................................... 8
Software ................................................................................................. 9
Hire purchase and conditional sale agreements .................................... 9
VAT ........................................................................................................ 9
Partial exemption ................................................................................... 9
Grants or subsidies......................................................................................... 9
Method used by the lessor to finance the leasing transaction ........................ 9
Paying and funding the purchase transaction............................................... 10
Currency of lease/hire purchase agreement................................................. 10
Currency risks and associated matters......................................................... 10
Disposal of goods on expiry of lease ............................................................ 11

157627-2
LESSOR OBTAINING TITLE TO THE EQUIPMENT............................................ 12
General......................................................................................................... 12
Purchase orders ........................................................................................... 12
Purchase agency agreements ...................................................................... 12
Novation agreement ..................................................................................... 12
Sale and lease back agreements ................................................................. 13
Warranties and installation and maintenance services................................. 13

HAZARDS OF SECURITY.................................................................................... 14
General......................................................................................................... 14
The lease agreement is not effective at the outset ....................................... 14
The asset does not exist ...................................................................... 14
The financier does not get good title to the asset................................. 14
Retention of title ................................................................................... 14
Landlord's fixtures ................................................................................ 15
Defects in security ........................................................................................ 15
Lessee no legal power ......................................................................... 15
Improper exercise by Directors of their powers .................................... 15
Failure to properly execute the document ............................................ 16
Undated documents ............................................................................. 16
Suspended powers .............................................................................. 16
Failure to meet registration requirements............................................. 16
Companies ........................................................................................... 16
Individuals ............................................................................................ 17
Ships, aircraft, patents and land........................................................... 17
Overseas validity .......................................................................................... 17

THE FINANCIER'S SECURITY IS VALID BUT SUBJECT TO OTHER SECURITY

INTERESTS.......................................................................................................... 18
Actual notice ................................................................................................. 18
Constructive notice ....................................................................................... 18
Priorities by notice ........................................................................................ 18
Priorities by registration ................................................................................ 19
Priorities by possession ................................................................................ 19
Priorities varied by agreement ...................................................................... 19
Checks and enquiries ................................................................................... 19

THE LEASING OR HP AGREEMENTS ARE SUBSEQUENTLY DEFEATED...... 20

Challenge on insolvency............................................................................... 20
Transaction at an undervalue............................................................... 20
Fraudulent preference.......................................................................... 21
Extortionate credit transactions ............................................................ 21
Floating charges................................................................................... 21
Fraudulent conveyance ........................................................................ 21
Administration order ............................................................................. 21
Disposal of the subject asset ........................................................................ 22
Sovereign action........................................................................................... 22
Diminution of value by failure to take supporting security ............................. 22
Set off and counter claim .............................................................................. 22
Insurance...................................................................................................... 23
Landlord’s right of distress............................................................................ 23

DOCUMENTING A TRANSACTION ..................................................................... 24

157627-2
 General......................................................................................................... 24
Standard documents .................................................................................... 24

MONITORING THE TRANSACTION .................................................................... 25

Monitoring payments .................................................................................... 25
Considerations on termination ...................................................................... 25
Insurance arrangements............................................................................... 25
Damage to the goods ................................................................................... 25
Monitoring lessor's security .......................................................................... 26

TERMINATING THE TRANSACTION................................................................... 27

Effect on other agreements .......................................................................... 27
Termination procedure.................................................................................. 27
Repossession of the equipment ................................................................... 27
Minor defaults ............................................................................................... 27

ENQUIRIES AND DUE DILIGENCE : POINTS FOR CONSIDERATION ............. 28

Warning on use ............................................................................................ 28
Who is your customer? ................................................................................. 28
Financial enquiries........................................................................................ 28
What are the goods? .................................................................................... 28
Who is the supplier? ..................................................................................... 29
Insurance...................................................................................................... 30
Premises for installation................................................................................ 30
What supervisory body (if any) controls the use, safety and operation of
goods?.......................................................................................................... 30
Delivery arrangements.................................................................................. 30
Grants........................................................................................................... 31
Currency of purchase ................................................................................... 31
Method of payment - letters of credit ............................................................ 31
How is the bank funding the transaction? ..................................................... 31
Security documents ...................................................................................... 31
Unusual transactions .................................................................................... 32

157627-2
 INTRODUCTION
WARNING ON USE
These guidance notes, lists, procedures, precedents and other documents enclosed are not
intended to provide a comprehensive all-purpose manual exclusive of further professional
advice, but as a guide to structuring and documenting certain hire purchase and leasing
transactions. It is unlikely that any two transactions will be precisely the same: care must be
taken in every case to take into account any unusual features of the transaction.

CONTACTS FOR ADVICE IN LAYTONS

Our aim in this Guide is to give general information on the subject matters covered; it is not
and does not purport to be comprehensive or to provide legal advice and in any specific
instance individual advice should be taken. If you have not previously worked with Laytons
and wish to take specific advice, please contact any of the people listed below.

LONDON BRISTOL
Laytons Laytons
Carmelite Saint Bartholomews
50 Victoria Embankment Lewins Mead
Blackfriars Bristol
London EC4Y 0LS BS1 2NH

Tel: ++ 44 (0) 20 7842 8000 Tel: ++ 44 (0) 117 930 9500

Fax: ++ 44 (0) 20 7842 8080 Fax: ++ 44 (0) 117 929 3369
E-mail: [email protected] E-mail: [email protected]

Contact names: Contact name:

Richard Kennett Sarah Dawson
Patrick Kelly

GUILDFORD MANCHESTER
Laytons Laytons
Tempus Court 22 St John Street
Onslow Street Manchester
Guilford ME3 4EB
Surrey GU1 4SS
Tel: ++ 44 (0) 161) 834 2100
Tel: ++ 44 (0) 1483 407 000 Fax: ++ 44 (0) 161 834 6862
Fax: ++ 44 (0) 1483 407 070 E-mail: [email protected]
E-mail: [email protected]

Contact name: Contact name:

Neale Andrews David Sefton

1
157627-2
 THE NATURE OF HIRE PURCHASE AND LEASING
TRANSACTIONS
LEASE TRANSACTIONS
In the eyes of English law a lease of goods is a hire contract by whatever name it is called.
Essentially, equipment is hired from the lessor to lessee so that the lessee can use the
equipment in exchange for payment of rent. The lessee never acquires ownership of the
equipment but only has the use of it. The leasing industry has developed a variety of names
to describe different leasing transactions. None of these have any legal significance, but in
practice they are used to differentiate particular leasing products. The fundamental
distinction is between operating leases and finance leases.

An operating lease is typically one under which equipment is let out on lease to one or a
succession of lessees each taking the equipment for the period during which it needs to use
it, paying a rent which reflects the equipment's use value. Where the lessor agrees to
maintain the equipment let under an operating lease the agreement is usually known as a
contract hire agreement. Frequently, the lessor will agree to maintain the equipment.

A finance lease is one in which the equipment is let out on hire for a period of time
approximately equal to its economic life and the lessee takes on all responsibilities for
maintaining the equipment. The rentals for the equipment under a finance lease are
calculated not on its use value, but upon the basis of producing to the lessor an amount
which, having taken into account any writing down allowances the lessor may be able to
claim, and the cash flow generated and the amount of rent received, will recoup the lessor's
expenditure in purchasing the equipment and give to the Lessor its desired return on its
capital.

TERMINATION
A finance lease normally does not permit the lessee to terminate the agreement before the
end of its term, or, if it does permit this, it will only permit it upon the basis that the lessor is
put back into the financial position that it would have been in had the agreement continued
for its full duration. An operating lease by contrast is likely to be capable of being
terminated at much shorter notice.

ACCOUNTING TREATMENT
From a lessee's point of view, it is usually important to ascertain whether a lease is treated in
its accounts as being an operating lease or a finance lease. When structuring leasing
transactions, it is frequently relevant to refer to the relevant accounting standards or, in
appropriate cases, to take advice on the accounting treatment.

HIRE PURCHASE TRANSACTION

A hire purchase transaction in essence is a lease of goods from a lessor to a lessee for the
lessee's enjoyment in exchange for the payment of rent. Upon all the rent payments being
made, the lessee will have an option to purchase the equipment for a nominal sum. The rent
payments will be equal to the capital cost of the equipment, plus interest arising during the
term of the hire purchase agreement on the capital monies tied up in that equipment. Under
a hire purchase agreement a lessee has only an option to purchase and is not obliged to
purchase the equipment.

2
157627-2
OTHER SIMILAR FINANCING INSTRUMENTS
Conditional sale agreements and chattel mortgages are also used for the financing of
movable property.

Conditional sale agreement

A conditional sale agreement is an agreement for sale of the item of equipment under which
title remains with the seller of the equipment until the purchase price of the equipment has
been paid in full and the buyer has complied with the other provisions of the conditional
sale agreement. While many of the commercial terms in a conditional sale agreement are
similar to those in a hire purchase agreement, the essential difference is that under a hire
purchase agreement the purchaser has only an option to purchase, whereas under a
conditional sale agreement, the purchaser is contractually committed to buying the
equipment. These guidance notes do not deal with conditional sale agreements.

Credit sale
Unlike a conditional sale agreement, a credit sale is one where there is an immediate
passage of title from the seller to the purchaser. Payment of the purchase price is usually
deferred and paid by instalments.

Chattel mortgages
A chattel mortgage is a charge given by the owner of an item of movable property (usually
an item of plant or equipment) as security for the obligations of the owner of that property to
the holder of the mortgage (usually the obligations will be those incurred in respect of a loan
used to buy the property). Under a chattel mortgage the property charged always remains
the property of the borrower; however, if the borrower defaults under the loan, the lender
will have a right to sell the equipment and use the sale proceeds to discharge the loan.
While it is frequently easier for a lender to use a chattel mortgage rather than a hire purchase
agreement or a conditional sale agreement, the degree of security it gives the lender is not
quite so good. Chattel mortgages of specific types are used in ship and aircraft financing
transactions. These guidance notes do not deal with chattel mortgages. Where a chattel
mortgage is given by an individual it is usually called a bill of sale. Bills of sale are subject
to cumbersome rules and should not normally be used.

THE GENERAL PURPOSE OF LEASING AND HIRE PURCHASE

FACILITIES
The use of hire purchase and leasing agreements frequently overlap with those of
conditional sale agreements or chattel mortgages, although each financial instrument has a
different set of rights and benefits. These guidelines however, have been prepared for the
general purpose of assistance in considering and structuring a hire purchase or leasing
facilities to corporate customers. Normally, in order for the equipment to be suitable for a
leasing or hire purchase transaction, it should have a high value which is likely to be
maintained for a substantial number of years; further, the equipment should be easily
identifiable and separable from other assets and equipment. The equipment being financed
should also ordinarily be equipment which is likely to remain in the possession of the user
of the equipment for at least a year. Accordingly, hire purchase and leasing finance is not
generally suitable for stock or other trading finance, which will generally require the lessee
of the equipment to have authority to deal in the goods.

THE TRIANGULAR RELATIONSHIP OF THE PARTIES

The nature of a hire purchase or leasing transaction always involves the inter relationship of
the supplier, who manufactures or sells the equipment; the finance house, who purchases the

3
157627-2
equipment from the supplier, either directly or indirectly, and who provides the capital to
finance the use of the equipment to the customer; and the customer, who takes the
equipment on lease or hire purchase from the finance house.

This relationship can be expressed diagrammatically as follows:-

FINANCE HOUSE

SUPPLIER CUSTOMER

English law unfortunately does not wholly recognise the triangular relationship of the
parties in a leasing or hire purchase transaction; it regards the transaction under which the
finance house buys the equipment from the supplier as being quite separate from that under
which the finance house lets the equipment on lease or hire purchase to the customer.

In the absence of agreement to the contrary between all three parties, it means that once the
financier has placed an order on a supplier for delivery of equipment he is committed to
that, even if the lessee refuses to take delivery of the equipment or refuses to proceed with
the transaction. Also, very considerable problems arise in practice if the equipment
delivered is not in accordance with the terms of the sale contract, or is delivered out of time.
If there is a late delivery, or delivery of the equipment is not in accordance with
specification, the legal remedy is left in the hands of the financier, whereas in practice the
customer suffers the principal loss and inconvenience. The customer's legal remedy is
against the unfortunate finance house, when the person at blame is the supplier. Finance
leases and hire purchase agreements frequently exclude liability on financiers for defects in
equipment and delays in delivery, but the customer frequently comes off very badly from
this arrangement as he can be left without a practical remedy against the supplier.

Assignments of warranties by the financier to the customer may aid the problem to a small
extent, but the customer can recover only such loss as the financier might have suffered and
the loss of the financier is likely to be quite different from the loss of the customer,
particularly if the customer has signed a "hell or high water" clause in the lease that requires
him to pay the rent irregardless as to whether the equipment is properly delivered or works
in accordance with its specification. To some extent these problems can be overcome by the
finance house stipulating in the purchase contract with the supplier that all assurances of the
supplier as to warranties, speculation, delivery etc., given to the finance house will also be
given to the lessee although even this will not always give the desired result. If at all
possible it is best, from a legal standpoint, for a tri partite agreement to be entered into
which recognises the real obligations between the three parties and gives them legal force.
In practice, the only real opportunity to do this arises if a novation agreement is entered into
between the parties. Novation agreements are referred to in more detail below.

LIABILITIES OF LESSORS OF EQUIPMENT TO THIRD PARTIES

Ships and aircraft

An important influence in the decision as to whether the customer leases, hire purchases or
borrows money to finance ships or aircraft are liabilities incurred by owners of these assets
to third parties. Under the law at present, the person liable to third parties for damage or
loss arising from accidents involving aircraft and ships, is the registered owner of the ship or

4
157627-2
aircraft, unless the ship or aircraft is being let to the lessee under a charter by demise with
the associated loss of owners control. Under leasing or hire purchase agreements, the
registered owner will normally be the finance company. While the cost of insurance cover
will be charged to the hirer, and in any event the hirer would be required to give the
indemnity for any loss, claim, or potential claims arising from use of the ship or aircraft,
aviation or marine accidents are extremely large and may exceed the insured loss and the
value of any indemnity given by the hirer. However, ship and aircraft leases mortgages and
charter documents are themselves highly specialised and are not the subject of these
guidelines.

Product liability
The relevant statute is the Consumer Protection Act 1987, which imposes strict product
liability (that is liability for damage or loss irregardless of fault) on manufacturers and in
some cases suppliers of goods. The suppliers of goods who will have strict liability, will be
deemed to include certain lessors of goods, where such goods have been imported into the
United Kingdom from outside the EEC (users of goods which have not been so imported
will have remedies against EEC suppliers directly). A finance house leasing goods which
have been so imported may have secondary product liability if the leasing transaction is not
purely a financial obligation. The lessor’s liability in such cases arises in respect of damage
caused to individual third parties by such goods and the supplier will have primary liability.

A mortgagee under a chattel mortgage will not however be a supplier with strict liability,
unless the mortgagee also manufactures and sells the goods. A lessor cannot contract out of
his liability arising under the Consumer Protection Act, although he can take indemnities
from the supplier and/or the hirer of the goods provided such persons are prepared to give
such indemnities. These notes do not seek to deal in detail with product liability of lessors.

TERRITORIAL LIMITATIONS
These guidelines and the documents attached to them have been prepared for use by a UK
bank or finance house having English corporate lessees who will use the financed assets in
England and Wales. Where the lessee is a Scottish company or where the asset will lie in
Scotland, additional considerations may arise which will need to be treated in a different
way. If the asset is intended to be in Scotland permanently or where there is a possibility or
capability if it being used from time to time in Scotland (for instance in the cost of heavy
goods vehicles or earth moving equipment) then this must be recognised at the outset and it
may be appropriate for further advice to be taken. More particularly, where it is intended
the asset should lie or operate in some other overseas jurisdiction, it will probably be
necessary to take the advice of local lawyers before entering into the transaction as the laws,
including the Tax Laws of at least two jurisdictions, will have to be carefully considered.

5
157627-2
 CONSIDERATIONS TO BEAR IN MIND WHEN
STRUCTURING A LEASE OR HIRE PURCHASE
TRANSACTION
STANDING AND QUALIFICATIONS OF THE BORROWER
It need hardly be said that the security structure - be it a lease or hire purchase transaction -
is secondary to the ability of the borrower to meet its obligations without the lessor needing
recourse to its security. It is not part of the function of these guidelines to discuss the
assessment of that ability, but clearly the party financing the leasing or hire purchase
transaction must be satisfied with the financial stability and soundness of the prospective
hirer before considering whether or not to accept the risk. Furthermore, certain businesses
require government or other regulatory consents before they can be carried on, e.g. running
an airline, a railway, a coalmine, a road transport business. A lessor should satisfy himself
that all such consents or licences have been obtained before agreeing to lease goods;
possession of such licences should be a condition of the leasing facility becoming operative.

SECURITY OVER THE TRANSACTION ASSET

Having made the decisions as to the credit-worthiness of the prospective hirer and the
prospective financing of the use of the asset the subject of the hire purchase or leasing
transaction, the financier must also consider what security it may require. The nature of
leasing and hire purchase transactions is such as to give the lender the security of the
particular asset the subject of the particular leasing or hire purchase agreement. Some assets
are obviously of better value as security than others, for example because they have better or
worse residual values during the life of and on termination of the Financing Agreement, and
the likely security value of the asset in question throughout the life of this Agreement must
be carefully considered.

Other security
Having assessed the hirer's strength of covenant and the ongoing security value of the asset
to be leased, the financier may seek further security, such as parent company or directors
guarantees or a charge on some other quite unrelated asset.

Commercial protection of security

Even if the financier is satisfied as to the cover of the security and the credit-worthiness of
the hirer, there may be a need to take security whether by way of charge or otherwise over
other related assets in order to perfect commercially the primary chattel security. In
particular, if the equipment is in the course of manufacture and there is an interim finance
agreement prior to the hire purchase or leasing agreement being granted, a charge on the
benefit of the contract of manufacture if that contract has not been novated to the finance
house may well be necessary; if the manufacturing contract includes obligations on the
manufacturer to make available performance bonds to secure his obligations to the
purchaser it may be appropriate to assign these to the lessor.

Security over related assets

In addition there may well be other assets or property which will be needed in order to
properly enjoy the primary asset being financed (and thus ensure that its full value is
capable of realisation): for example, patents or patent licences or rights in computer
software may be needed, in order to make the primary asset work. In this case, other
security documents should be drawn up in order to protect the financier's security interest.

6
157627-2
Software licences give rise to particularly difficult problems in equipment financing and
specific advice should be taken in each case.

Subleasing agreements
Another matter to consider in hire purchase and leasing transactions is a charge on the rental
stream and rental contracts arising out of any sub hire agreements for the equipment if the
hirer is sub hiring the equipment, to third parties.

Manufacturer buy-back agreements

If the lease or hire purchase transaction is structured with a balloon rental at the end of the
hire period, it may well be appropriate for the amount of that rental to be commercially
underwritten by the supplier or dealer entering into a buy back agreement with the lessor
undertaking to buy back the equipment at a nominated price on expiry of the lease if the
lessee defaults.

Residual value insurance

Another less of frequent way of underwriting the resale value of the equipment and hence
the method of funding the balloon rental, is to enter into a residual value insurance contract
for the goods subject to the hire or lease agreements.

Discounted bonds
Balloon payments at the end of leases can also sometimes be financed or secured by the
lessor or lessee purchasing discounted bonds or similar financial instruments which will
accrue sufficient value during the term of the lease in order to meet a balloon payment upon
its expiry.

INSURANCE
In any hire purchase or leasing transaction the insurances relating to the asset (including
third party liability) also constitute a substantial part of the security package. It will be
necessary for the financier to have a substantial interest in or charge on the insurances in
order that the full value of the primary asset may be protected and also that the lessor may
be protected against claims by third parties in respect of any harm done to them by the asset
being financed. It is normally a provision of any form of finance lease or hire purchase
agreement that the lessee or hirer will put in place all necessary insurances and will bear the
cost of keeping them there; it is essential however for the lessor to verify for itself that all
appropriate insurance arrangements have been made before the transaction is entered into.
The insurance requirements for complicated items of equipment requiring installation and
being supplied from overseas countries are extremely complex and the financier's own
insurance brokers should check the requirements, to ensure that risks in off loading, delivery
and installation are covered, as well as risks when the equipment is up and running and in
full operation. Since insurers in the United Kingdom are generally very slow at producing
insurance policies effecting detailed cover arrangements sufficient to satisfy financial
lessors, it is most important that such insurance arrangements are put on foot at the earliest
possible opportunity. Furthermore, it is frequently appropriate to require insurers or the
lessee's brokers to enter into direct written undertakings with the lessor to keep the goods
insured and to pay any claims to the lessor.

7
157627-2
TAX CONSIDERATIONS

Tax depreciation allowances

One of the fundamental tax issues to address in structuring leasing transactions is the
availability of tax depreciation allowances in at least one jurisdiction. While this guide
concentrates on the UK position, it is worth noting that generally the UK tax rules on capital
allowances and writing down allowances are such that there is little scope for export tax
based leasing to other jurisdictions, although there may be limited opportunities where the
equipment is used for short term leasing. Nevertheless, the tax depreciation rules of other
jurisdictions are a little more flexible and there may be opportunities for import tax based
leasing from other jurisdictions but they need very careful planning.

UK first year allowances

While the UK used to have a generous regime of first year allowances of up to 100% of
expenditure incurred, these were generally abolished in 1986. However, first year
allowances were reinstated for expenditure for certain goods incurred after 1 July 1997
provided the goods were acquired by a small or medium-sized enterprise and not made
available for leasing. The rate is 50% for expenditure incurred before 2 July 1998 (12% for
long life assets and 40% for expenditure incurred after 1 July 1998 but long life assets are
no longer included). Generally, such first year allowances are only relevant for leasing
purposes where a small or medium-sized business in the UK acquires goods under a hire
purchase or conditional sale agreement.

UK writing down allowances

Generally, writing down allowances are available to those carrying on a trade in the UK for
any chargeable period to any person who has incurred expenditure on machinery or plant
which belongs or has belonged to him. The allowance is at the rate of 25% per annum.

UK writing down allowances and finance lessors

Where expenditure is incurred after 1 July 1997, only a proportion of capital expenditure
during a chargeable period on the provision of plant or machinery for leasing under a
finance lease may be brought in as qualifying expenditure for that period by the lessor. The
proportion is the same as the proportion of the chargeable period remaining after the
expenditure was incurred. The balance may be brought in the following period(s). Thus, if
the expenditure was incurred nine months into a chargeable period, only one-quarter of the
expenditure will be available for writing down allowances in that period.

Use of first year and writing down allowances

The amount of such allowances may be set off against the Corporation Tax liability of the
party claiming such allowances. Thus, to make use of such allowance, the tax payer must
have sufficient profits and hence liability to tax on “tax capacity”. If a potential user of
equipment does not have the tax capacity, it may be appropriate for a party who does to
acquire the equipment and let it to that user at a rental rate that reflects a sharing of the
lessor’s tax benefit. The net effect is thus likely to be that the lessee will acquire the use of
the equipment at a cheaper funding rate than he could have achieved without the lessor’s
assistance.

Lease rental payments

Subject to certain anti-avoidance provisions and the application of relevant accounting
principles, lease rental payments by a lessee liable to tax in the UK are treated as costs of
the lessee’s business in computing its profits brought in to charge to Corporation Tax.

8
157627-2
Software
Where part of the value of the goods is attributed to software, expenditure incurred in its
purchase may qualify for writing down allowances.

Hire purchase and conditional sale agreements

Where goods are let on hire purchase, or acquired under conditional sale agreements,
writing down allowances may be claimed only by the hirer.

VAT
Any person carrying on a leasing or hire purchase trade in the United Kingdom will need to
be registered for Value Added Tax. Insofar as equipment is rented in to other EU states
additional local VAT registrations may be necessary. Where such a person carries out hire
purchase transactions in the UK, they are treated as being a supply of goods and accordingly
Value Added Tax is payable by the hirer on the cash price of the goods when the hire
purchase agreement is executed or upon delivery of the goods, whichever is the earlier.
Where a transaction is structured as a lease, the lessee has no right or entitlement to
purchase the goods and the supply of the equipment is treated as the supply of a service and
the lessor is obliged to charge and the lessee will pay Value Added Tax. Generally, the tax
being, as and when the lessor receives each rental payment or issues each VAT invoice
(whichever is the earlier). Value Added Tax is payable at the standard rate (currently
17.5%).

Partial exemption
It is not proposed to cover in these notes detailed rules relating to partial exemption of
companies carrying on any hire purchase or leasing trades.

GRANTS OR SUBSIDIES
In calculating the precise amounts to be financed under the lease or hire purchase
agreement, consideration must carefully be given to the availability of government grants
that may be available for specific purpose (such as robotics grants in specific industries) or
whether general grants are available for use of the goods in particular locations (such as
Development Area Grants). If it is considered appropriate by the financier and the customer
for some or all of such grants to be applied for by the lessor, then appropriate provision
should be made in the leasing documentation to cover the position of the lessor in the event
that either there is a clawback of such grants by the appropriate government department or
such grants are not in practice made available or are not received by the time the equipment
has to be paid for. In many cases it is not possible for the lessor to apply for such grants
itself and it is necessary for grant applications to be made in the name of the lessee. Since
the regulations relating to the grants that are available change on a fairly regular basis, a
detailed study should be made at an early stage in the financing transaction of all the grants
that may be available and these notes do not seek to provide such detail.

METHOD USED BY THE LESSOR TO FINANCE THE LEASING

TRANSACTION
The method of drafting the lease documentation will differ to some extent depending upon
the method by which the lessor proposes to fund the lease or hire purchase transaction. If
the lessor proposes to fund the lease out of his general working capital facilities then no
complications are likely to arise during the term of the lease or in its drafting. If the lessor
proposes to finance the leasing of the equipment through the use of a hire purchase
agreement, or through a special loan written on the basis that it is directly connected with
the lessee or the lessee's willingness to pay, or if the lessor has insufficient tax capacity to

9
157627-2
make use of writing down allowances which may become available as a result of purchasing
the asset and the lessor proposes to enter into a "back to back" lease with a lessor who can
use the tax capacity, then the lease documentation will need to be written in a form which
takes into account the rights and interests of all the other parties in the transactions and the
documentation contained with these notes will not be suitable for such purposes.

PAYING AND FUNDING THE PURCHASE TRANSACTION

It is necessary to establish at an early stage how the equipment is to be paid for and to
establish exactly who, as between the financier and the lessee, is going to pay for the goods
in the first instance. In the event that the lessee is to pay for the goods, but the lessor is
somehow to reimburse the lessee for the cost, then the method and extent of the
reimbursement needs to be clearly set out between the parties and the reimbursement
methods need to be tied in with provisions in any novation agreement or agency agreement
under which the lessor will be acquiring a title to the goods.

The provisions of novation agreements and agency agreements must be carefully dealt with
and are referred to in outline below. In particular, provisions clearly need to be made to
deal with the payment of the United Kingdom Value Added Tax and the proper invoicing
therefor, as between the supplier of the equipment and the financier and/or the customer.
Normally if the equipment is being bought by the lessee as purchasing agent for the lessor,
the lessee will pay the purchase price of the equipment including VAT and will seek
reimbursement for the non VAT portion of the price from the lessor. If the supplier is to be
paid for the goods under a letter of credit, steps need to be taken to ensure that the payment
terms of the letter of credit agree with those in the contract and that the payment terms in the
contract and the letter of credit are sufficiently certain to enable payment to flow properly to
the manufacturer or supplier on the due day. If leasing arrangements are being structured
through any back to back leasing arrangement, payment arrangements may be substantially
more complicated.

CURRENCY OF LEASE/HIRE PURCHASE AGREEMENT

The currency in which the lease or hire purchase rental will be paid needs to be clearly
expressed in the agreement. If the lease or the hire purchase agreement is being dealt with
on a cross-border basis, it may be appropriate for the lessee to have options to switch
currencies at specific times during the period of the lease. However, as a general
commercial matter it is not sensible for a lessor to allow a lessee to pay for lease rentals in a
currency in which a lessee does have a cash flow at least sufficient to meet all of the lease
rentals falling due. The documentation enclosed with these notes do not include provisions
for payment in currencies other than sterling.

CURRENCY RISKS AND ASSOCIATED MATTERS

If the lessor is to acquire the goods to be leased within the United Kingdom in a currency
other than sterling, or the lease rentals are to be paid in a currency other than sterling,
provisions need to be included so as to carefully apportion the exchange risk; normally this
will be borne by the lessee. Where the purchase contract requires stage payments or
payments to be made over a substantial period of time after the contract has been signed, it
may well be sensible to enter into currency forward purchase agreements with the lessee's
consent in order to cover the requirements to have the payment currency available on the
necessary date and to fix the amount of the sterling liability. If the lessee does not have
income arising in the currency in which payments are to be made under the lease and
commercially the lessor is prepared to allow such arrangement to exist, it may be sensible
for the risk to be covered by forward purchase of rental payments or for the lessor to make
arrangements for the lessee to enter into currency swap arrangements.

10
157627-2
DISPOSAL OF GOODS ON EXPIRY OF LEASE
The manner in which the goods are disposed of on expiry of the lease needs to be
considered initially when planning the transactions. The assumption of finance leases is that
at the end of the lease the equipment will have a relatively small residual value and it is
frequently the practice for lessors to make over the greater part of this residual value to the
lessee by paying him (or crediting him against a future transaction) most of the proceeds
arising from the sale of the equipment upon termination of the lease. This is normally done
by appointing the lessee as the lessor's agent to sell the equipment upon termination and
either to pay the lessee a commission equal to 97.5% of the nett sale price or to allow such
monies to be rebated to the lessee against rentals paid. From the lessor's standpoint, if the
monies are paid by way of a rebate of rentals they are likely to be treated as a deduction
from its income for corporation tax purposes. If the lessor pays the money to a lessee by
way of an agency fee it will be treated for corporation tax purposes as reducing the sales
proceeds of the goods and hence the amount of the balancing change to be applied for
writing down allowance purposes.

11
157627-2
 LESSOR OBTAINING TITLE TO THE EQUIPMENT
GENERAL
Since the acquisition and retention of title by a lessor is the lessor's prime security, obtaining
such title free and clear of third party rights is one of the most pressing concerns for a lessor.
If the lessor is the original manufacturer of all the equipment, few problems are likely to
arise in connection with the lessor acquiring that title (assuming it pays all its suppliers for
the component parts that are placed into the equipment). If the lessor is a finance house
independent of the manufacturer the acquisition of title is more complicated. There are
basically four ways by which this can be done and the particular method to be adopted
depends upon the stage at which the lessor enters into the transaction and the relationship
between the lessor and the supplier and/or the lessee. These are purchase orders, purchase
agency agreements, novation agreements and sale and lease-back agreements.

PURCHASE ORDERS
Firstly, if the lessor and the manufacturer are closely connected as they are where an in-
house sales-aid leasing company/manufacturer relationship exists, then the prospective
lessee can ask the sales aid leasing company to purchase the relevant equipment from the
lessor in order that the lessor can let it on hire to the lessee This arrangement does not
necessarily protect the lessee and lessor from all the legal problems referred to above,
although in practice the manufacturer and lessee may act as if they are one legal entity.

PURCHASE AGENCY AGREEMENTS

Where the lessor enters into the transaction at an early stage, but relations between the
lessor and manufacturer are less close than those in the sales aid environment, the lessor can
grant the lessee a purchase agency agreement so that (subject to certain controls and
limitations) the lessee acts on behalf of the lessor in purchasing the equipment from the
suppliers. A purchase agency agreement cannot be used at all where the contract has
already been entered into between the lessee and the supplier. The purchase agency
agreement may well contain provisions for the lessor to fund stage payments and examples
of such documents are contained in this package.

NOVATION AGREEMENT
If the lessor comes into the transaction at a late stage, the lessee may have already entered
into a contract with the supplier or manufacturer. In order for good title to pass to the lessor
it will be necessary for the lessor to enter into that transaction through the use of a novation
agreement. A novation agreement is a contract which, in essence, cancels the original
supply contract with the purchaser and substitutes the obligations under the original supply
contract for a new set of obligations as between the finance house and/or the supplier. In
practice, a novation agreement is an extremely useful document to set out a more
appropriate apportionment of rights and obligations between the lessor, the supplier and the
lessee than the normal triangular relationship allows. Novation agreements can be
extremely complicated documents; it is particularly important in preparing such agreements
to make sure that the rights and responsibilities between the various parties are carefully
apportioned and that the provisions governing cash flows, passing of title and warranties
and rights for the lessee to claim against the suppliers for failure to deliver the equipment
are clearly set out. If this agreement is not written correctly the lessor may not obtain the
full tax benefits arising under the transaction, the lessee may acquire warranty obligations
that it does not wish to acquire in a financial transaction and warranty benefits may not
otherwise properly be passed to the lessee. If the lessee has or may have acquired title to the
equipment under the original purchase agreement, the novation agreement should provide

12
157627-2
for such title to be returned to the supplier, who re-grants it to the finance house. Title
should not pass from the lessee to the lessor in the novation agreement. A novation
agreement should never be prepared without first reading all the contract documents and
understanding their full effect.

SALE AND LEASE BACK AGREEMENTS

If the lessor arrives on the scene too late for an agency agreement to be granted or a request
for a purchase agreement to be entered into, or the supplier is not prepared to enter into a
novation agreement, or it is not appropriate that this should be done, then occasionally a sale
and purchase agreement can be entered into between the lessee and the lessor. For United
Kingdom tax reasons and the complicated reasons relating to security documents it is rarely
appropriate that such transaction be used and frequently it is more appropriate to structure
such a transaction using some form of loan facility and chattel mortgage rather than to dress
up the transaction as a leasing or hire purchase transaction.

WARRANTIES AND INSTALLATION AND MAINTENANCE SERVICES

In planning the transaction it is important to appreciate that the manufacturer will probably
wish, to some extent, to limit his liability for warranties and providing maintenance service,
although it may not necessarily be appropriate to allow him to do so fully. Where, however,
complex pieces of equipment are involved such as aircraft, comprising many items of
equipment supplied by a variety of suppliers, complex warranty assignment measures
should be included in the leasing package in order to make sure that liabilities rest with the
parties best capable of dealing with and managing them, and that corresponding rights pass
to the lessor during the period of the lease and revert to the lessee upon its expiry. So far as
the installation of the equipment is concerned, it is appropriate to make sure that the
installation contract is entered into between the lessee and the manufacturer or supplier and
that the lessor has the benefit of that contract should the lessee default on it in any way.
However, the lessor does not in any way wish to undertake any obligations in relation to
manufacturer installation or maintenance since in practice he is not in a position to carry out
such obligations. So far as maintenance agreements are concerned, it is appropriate where
complex items are involved that proper maintenance contracts should be entered into
between the lessee and the manufacturer, or a third party maintenance company, but
provision should be made for the lessor to benefit from such a contract in the event that the
lessee should default on its obligations under the lease, in order that the lessor can continue
to have the equipment maintained when it repossesses it and is trying to maintain it in good
order so as to effect a proper sale of the equipment in good condition at full value.

13
157627-2
 HAZARDS OF SECURITY
GENERAL
Broadly there are three classes of problems where a lease or hire purchase agreement
granted will not provide all or any of the security contemplated by the lessor. These are
where:-

ƒ The hire purchase or lease agreement is not effective at the outset;

ƒ The leasing agreements are valid but subject to other security interests;
ƒ The lease or hire purchase agreement is validly taken but is subsequently defeated.

Each of these problems will be discussed separately.

THE LEASE AGREEMENT IS NOT EFFECTIVE AT THE OUTSET

The asset does not exist

It is most important that the financier should make sufficient investigation, prior to paying
out any money, so as to be able to confirm that the asset being financed actually does
physically exist in the place where it is supposed to exist. Many rogues have been known to
persuade finance houses to finance non-existent goods, the rogues have then run off with the
money and shown a remarked reluctance ever to repay it.

The financier does not get good title to the asset

Where the asset exists but the financier does not have sufficient title to it, a number of
possibilities arise. It must be remembered that the lessor will acquire title to the equipment
only in accordance with the normal principles of the sale of goods whereby the financier as
purchaser can acquire only as good a title as the person who sold him the goods.
Accordingly if the person who sells the goods to the finance house did not have title to the
goods, the finance house will in turn fail to acquire good title, although there are specific
exemptions to this rule. It may well be that the goods sold to the financier simply belong to
someone else other than the person who sold them, or are held by the vendors, for instance
under an existing hire purchase arrangement, or even may hold them wrongfully or
fraudulently. Certain investigation can be made and the asset itself should physically be
inspected for notices of third party rights. Searches at the Hire Purchase Information
Service should also be carried out. Chattels will not generally have documents of title as
such but what documents there are should be inspected and held by the financier. It should
be remembered that invoices are not documents of title and cannot be relied upon as giving
any indication of ownership. The finance house industry has for many years adopted the
practice of assuming that, if they pay an invoice sent to them, they will get good title to the
equipment. They will not always do so and to do so acts to imply some form of informal
novation of the original supply contract. This is likely to put the finance house in the
difficult position of impliedly accepting the prospective lessee's obligations to take delivery
and to assist in installation, which in practice it cannot fulfil. The practice is a dangerous
one and should be avoided. If the asset is in the course of manufacture or delivery, the bills
of lading (which are equivalent to title documents) should be held by the financiers.

Retention of title
The asset to be financed may be subject to a retention of title clause in favour of the
supplier. Accordingly it is most important that the contract under which the equipment will
be supplied is read most carefully before it is entered into and, if necessary, confirmation

14
157627-2
should be obtained from the supplier that good clean title will pass on delivery or upon
payment by the financier to the supplier. In other cases the lessor should seek confirmation
from the manufacturer or supplier that it has no claim for title on the asset. If title is to pass
on payment, the lessor should make provision for payment direct to the suppliers. Where
the equipment is being sold to the finance house second hand, there is much more likelihood
of problems arising concerning title to the equipment and there is a much greater need for
due diligence to be carried out.

Landlord's fixtures
The asset may be deemed to belong to the landlord by operation of law upon becoming
affixed to real property and thereby the finance house may lose its security. This is a
particularly difficult area of the law with many conflicting judgments and it is essentially an
aspect of the law of landlord and tenant. Briefly, if an asset becomes a fixture on land it
becomes part of the land and therefore title automatically belongs to the landlord, despite
the fact that he never paid for it. Thus, if the asset is or may become affixed to the site, then
a deed of severance should be obtained from the freehold owner of the land and from any
intermediate landlords that the goods will not be regarded as a fixture. Failure to do this
may result in the lessor losing its security. It is also wise for the lessor to obtain a deed of
waiver from the landlord of property where equipment will be situate, so as to waive the
landlord's rights to distraint for rent on goods in the leasehold premises.

DEFECTS IN SECURITY
The asset exists but there is formal defect in the security. A variety of circumstances can
give rise to this unfortunate event, including:

Lessee no legal power

The lessee has no legal power to enter into the lease or hire purchase transaction. The
company's powers are governed by its memorandum and articles of association and by the
general law. These powers are exercised only in pursuance of the purposes for which the
company was formed. A transaction which the company is not empowered to enter into or,
if it is conceptionally empowered, is not in pursuit of its purposes, is potentially void.
While the harshness of these rules are mitigated in certain ways which will be discussed
later, mitigation is in each case subject to the requirement of good faith by the lessor and,
since the lessor will in the circumstances will be presumed to have obtained copies of the
memorandum and articles of association from the Companies Registry, together with all the
amending resolutions, the lessor will be fixed with notice of the powers contained in the
memorandum and articles and amending resolutions. The lessor should not therefore rely
on the exceptions, but should always inspect the memorandum and articles to ensure the
powers exist to enter into hire purchase or leasing transactions and that the transaction is
executed for the proper purpose i.e. that the equipment, its use and its financing is
reasonably within the scope of the company's approved business.

Improper exercise by Directors of their powers

Even if the company is empowered to enter into hire purchase and leasing transactions and
the power is exercised apparently for the purposes of the lessee and its business, the basic
principle is that the directors must bona fide exercise their powers for the benefit of the
company and such exercise must be in accordance with the procedures stated in the articles
or implied by law. Certain limited exceptions apply to this rule.

15
157627-2
Failure to properly execute the document
All the documents must be fully completed and properly executed. All items left blank and
schedules where annexed should be properly completed and all the documents to be
annexed should be physically attached to the document which will properly become valid
only when it is duly dated.

Undated documents
When the documents have been fully completed and returned to the lessor or its advisers
undated, which again may precede by a significant period the date of completion of the
transaction, the lessor should be given express authority to complete the execution of the
document by inclusion of the date. Documents under hand should include not only the
signature of the person accepting on behalf of the lessee company, but also legibly their
name and position. All minutes of board meetings should pre date the documents and be
consistent with events and if they refer to documents they should relate to the final form of
those documents or else approve them subject to likely final amendments.

Suspended powers
The lessees and its officers powers may be in suspension or have been terminated upon the
commencement of insolvency. If the asset to be leased or the contract for the supply of the
asset would otherwise be charged by a floating charge over it, or its contract for supply,
letters of non crystallisation should be obtained from the debenture holder. Furthermore, a
search of the Company's Court index of winding up petitions should be made immediately
prior to drawdown to ensure that no petition to wind up the company has been issued, since
a winding up order will relate back to the date of the issue of the petition and not commence
on the making of the order. A telephone search of the index can be made at the Central
Registry (telephone 020 7947 7328).

Failure to meet registration requirements

Where the security for the lessee's obligations is not only the lessee entering into the lease or
lease purchase agreement, but is some additional secondary security, failure to meet
registration requirements affecting such secondary security may well affect priorities of that
security; in addition certain failures to register such security will affect the validity of such
additional security itself.

Companies
Most significantly, where the person over whose asset secondary security is taken is a
company, a mortgage or charge over that company's assets must be filed at the Companies
Registry together with the appropriate Companies Registry form within 21 days of the date
the security is actually granted not 21 days from the date inserted in the document if that is
different. If this is not done, the security will be void against the liquidator or other
creditors of that company (although not against the company itself). This failure cannot be
rectified by its subsequent registration but in the absence of making a special application to
court to register out of time will require a fresh execution. So long as the document is
registered and accepted by the Companies Registry within the 21 day period, the time of
registration will not per se affect priorities, which will be governed according to the normal
rules on time and quality of security. It is very important to file the charge and supporting
form as soon as possible after they have come into effect, so that if there are any defects,
these can be remedied and the document returned to the Registry within the 21 day period.

16
157627-2
Individuals
Where a charge on a chattel is taken from an individual or a partnership this may require to
be registered at the High Court as a bill of sale. This is a troublesome technical procedure
and subject to tight and strict timetables and forms of documents. It is so difficult that only
in unusual circumstances should such a security structure be considered.

Ships, aircraft, patents and land

Ships, aircraft, patents and land all require to have charges over them perfected by
registration at the appropriate registry. The rules for registering charges in relation to land,
ships and aircraft, patents and trade marks are all subject to separate procedures.

OVERSEAS VALIDITY
While a charge or leasing agreement or hire purchase agreement may be valid in the United
Kingdom, if the asset leaves the jurisdiction it may be invalidated for want of satisfaction of
local requirements in another jurisdiction; accordingly, if these assets are to be taken abroad
local advice should normally be taken to see whether the legal security taken is recognised
in that local jurisdiction.

17
157627-2
 THE FINANCIER'S SECURITY IS VALID BUT
SUBJECT TO OTHER SECURITY INTERESTS
The effect in these circumstances is that the benefit of the asset that the financier thought he
had as security for the lessee's obligations, will in fact first be applied in whole or in part to
discharge other liabilities of the lessee to a third party. A person purchasing an asset or
taking a charge over other assets with notice of the existence of prior charges of comparable
quality to the financier's proposed charge or security purchase will take his charge subject to
the other charges. The financier will also take his charge or security of purchase of the
asset, subject to the existence not only of the charge itself but also to any restrictions and
covenants of a negative nature i.e. not to sell the asset or to give any other charges. Notice
of other charges or interests in the goods may be either:-

ACTUAL NOTICE
When the financier is aware himself or by his advisers of the existence of prior charges and
covenants. In the case of certain assets such as aircraft, all parties are deemed to have actual
notice of charges merely by registration, whether or not they in fact know of them or make
searches at the aircraft registry. Matters disclosed by the lessee to the lessor of which the
lessor discovers in the course of his investigations will be within its actual knowledge and
once known cannot be conveniently forgotten.

CONSTRUCTIVE NOTICE
However, parties are also fixed with constructive notice of what they would or should have
discovered in the course of normal prudent inquiries. It is to be hoped that matters which
would constitute constructive notice will be matters of actual notice arising in the course of
the lessor's pre-contractual investigations. In particular, the lessor will have constructive
notice of the matters available on public file at the Companies Registry, that is to say
Memoranda and Articles of Association of the lessee and the contents of the lessee's charges
register at the Companies Registry. The doctrine of constructive notice means that a
subsequent purchaser of the once charged goods or a lender lending against the security of
the goods will be bound by or subject to matters of which he should or might reasonably be
expected to have had notice in the course of the normal conduct of business by a person of
that class. For instance this means that an ordinary trade purchaser of an item of plant or
equipment would probably not be fixed with constructive notice that it was charged, when
the only source of information was the Companies Registry charges register, while a bank
taking a charge on the same asset or a finance house agreeing to purchase the asset to let on
hire purchase or lease would probably be expected to have made such searches. The scope
of the doctrine of constructive notices is not entirely clear. Moreover, because commercial
practice changes, changes in the reasonable standard of conduct occurs and accordingly so
does the extent of the doctrine of constructive notice.

PRIORITIES BY NOTICE
It is essential to preserve priorities in respect of charges over assets which are in effect
contractual rights (e.g. the benefit of contracts, insurance policies, debts etc) by giving
notice of an assignment by way of charge to the other parties to the contract and any prior
mortgagors (e.g, the supplier, the underwriter or the debtor) since that person will be obliged
to pay the first person who has served notice of assignment, not the first person who is given
a charge over the contract, insurance policy, debt etc.

18
157627-2
PRIORITIES BY REGISTRATION
The taking of security over certain assets is subject to registration and although the
regulations governing registration normally make provisions for protective searches and so
forth, the general rule is that the time of registration of the charge governs priority, not the
time of granting of the charge. Such registration covers ships and aircraft, patents and land
but no other class of chattels.

PRIORITIES BY POSSESSION
Such priorities do not strictly regulate the priorities. Security interests by way of possession
(unless the possession is intended to be by way of security) are generally rights to retain but
not to own or dispose of the assets. There are, for instance, such rights as the unpaid
vendor's lien, carrier's lien and so on; such rights will arise if subsisting prior to the grant of
a charge or lease, otherwise as in normal circumstances the lien will be subject to the prior
interest of the lender by reason of its security. In leasing and hire purchase transactions
liens can frequently be quite a bother for the lessor and you may find that by reason of some
dispute arising between the carrier of the goods and the lessee, the carrier does not get paid
for carrying the goods and accordingly refuses to allow them to be operated or handed over
and, unless such liens are in practice discharged by the lessor, it may well mean the lessor's
security interest is substantially eroded.

PRIORITIES VARIED BY AGREEMENT

Frequently the priorities which would otherwise prevail under the general law will be varied
by agreement between the persons having interests in the assets being financed. It is often
likely that a prospective lessee will have an existing mortgage debenture, for instance
charging by way of first fixed and floating charge on the borrower's plant and machinery
and it may also have a first fixed charge on all contracts to which it is party. Accordingly,
immediately upon the prospective lessee entering into a contract of purchase of an asset, or
upon the lessee acquiring title to the asset intended to be secured by the relevant leasing
agreement, it would become subject to the existing mortgage debenture and the prospective
lessor would have actual or constructive notice of the prior interest and be bound by it. In
such circumstances it would normally be essential for this priority to be postponed or
discharged and a deed of priority or a deed of waiver may need to be obtained from the
debenture holder; in any event, all the other charges taken by the prospective lessee
(whether or not applying directly to the asset to be secured) should be inspected to ascertain
the security provided.

CHECKS AND ENQUIRIES

It is essential to make full enquires of all relevant persons so that all other interests in the
assets proposed to be financed are established prior to the granting of facilities to the
prospective lessee. It is not prudent to proceed with the transaction until all persons
interested in the prospective assets have agreed their respective rights, priorities and security
interests.

19
157627-2
 THE LEASING OR HP AGREEMENTS ARE
SUBSEQUENTLY DEFEATED
Even though the lease or hire purchase agreement or associated security may have been
validly created, and is not subject to any prior security interest, (whether arising at the outset
or subsequently) there are certain circumstances where a lease or hire purchase agreement
may be defeated, either by subsequent events giving rise to the right to challenge its validity,
or, by the assets slipping through the securities net.

CHALLENGE ON INSOLVENCY
The first class of matters to be considered are those which arise on the insolvency of the
prospective lessee, following the granting of the lease or the associated securities. The
appointment of a receiver or liquidator will not of itself have any adverse effect on the
security, but if an administration order is made in relation to the company or the company
goes into liquidation, the administrator or liquidator is entitled to review and attack prior
transactions or to prevent or delay the sale of assets subject to hire purchase agreements,
leases, conditional sale agreements and chattel mortgages. Such attack may succeed
primarily in the circumstances mentioned below.

Transaction at an undervalue
Transactions (including the grant of security) at an undervalue are voidable at the instance
of a liquidator or administrator. A transaction is carried out at an undervalue if:

ƒ a company makes a gift to a person or otherwise enters into a transaction with a

person on terms which provide for the company to receive no consideration; or

ƒ a company enters into a transaction with a person for a consideration the value of
which, in money or money's worth, is significantly less than the value, in money or
money's worth, of the consideration provided by the company.

It is unlikely that a lease or hire purchase agreement to secure an advance for the purchase
of the leased asset will ever be a transaction at an undervalue, since the security will apply
only to the extent of the value of the purchase price of the asset. The security thus precisely
equals the value of the transaction. More difficulties arise where security is given for third
party liabilities: thus if a company has given a guarantee or charge for the liabilities of a
third party it may be difficult to show the value received by that company in relation to the
security given for the liabilities of a third party to the financier. Guarantees or charges will
not be set aside if it can be shown that:

ƒ the company which entered into the transaction did so in good faith and for the
purpose of carrying on its business; and

ƒ that at the time it did so there were reasonable grounds for believing that the
transaction would benefit the company.

0ransactions at an undervalue at any time within the period of two years prior to the
commencement of the insolvency or administration are at risk of attack. Care should
therefore be taken to ensure that adequate value is given to the party giving the guarantee or
third party security by the lessee or lessor and that they are clearly seen to do so for the
proper purpose.

20
157627-2
Fraudulent preference
The second class of transaction which may be held void are those which were formerly
known as "Fraudulent Preferences" - namely, doing something in regard to a creditor, or
surety or guarantor of that company's debts which has the effect of putting that person into a
position, which in the event of the company going into insolvency, is better than would have
been if the thing had not been done. This applies only if the lessee was at the time of the
transaction unable to pay its debts and in the case of preferences in favour of a person not
connected with the lessee company given in the period of six months prior to the
commencement of the insolvency. In most circumstances, the leasing transaction is made
prior to and as a condition of the lessor becoming a creditor and would thus escape any
attack.

Extortionate credit transactions

Under section 244 of the Insolvency Act 1986, upon an insolvency the court may set aside
or vary an extortionate credit transaction with a company if the terms of the transaction
require "grossly exorbitant" payments to be made or otherwise grossly contravenes ordinary
principles of fair dealing.

Floating charges
Floating charges (which are not considered by these notes) may be set aside under certain
circumstances if granted during a period of twelve months prior to commencement of
insolvency.

Fraudulent conveyance
A transaction by a lessee, made with the intention of defeating or delaying its creditors is
voidable at the instance of any person thereby prejudiced. This is only likely to affect leases
or hire purchase agreement for goods if the lessor has actual or constructive notice of the
lease or hire purchase agreement being given with the intent to defeat or delay creditors, or
if the lessor seeks to insert in an otherwise executed leasing agreement or debenture or
charge other false particulars for the purposes of procuring a properly "valid" registrations at
the Companies Registry or participates in other dishonest activities.

Administration order
The 1986 Insolvency Act introduced a new form of corporate undertaker, the
"Administrator". An Administrator is appointed by the High Court upon an application by
the Company or interested creditors to devise an agreed rescue or reorganisation plan while
the company receives protection from its creditors. The appointment of an Administrator
will prevent the lessor from taking possession of the leased asset and exercising the lessor’s
powers of sale (although a receiver of the business and undertaking under a floating charge
may prevent the appointment of an administrator and compel completion of the
receivership). The lessor's security will, in the case of an administration, remain in place
but the lessor will be unable to realise the security without a court order, or the agreement of
the Administrator. If it appears that there is a likelihood of an Administrator being
appointed in circumstances that appear not to be advantageous to the finance house, it may
well be appropriate to repossess the leased equipment at an early stage, and sell it prior to an
application for an administration order being made if this is practical. Even if an
Administrator is appointed at a time when the lessor has not realised his security, this may
not necessarily be the end of the world, since the Administrators are likely to be experienced
to insolvency practitioners who are likely to be appointed unless they have some reasonable
chance of restoring all or part of the Company's affairs to a better state of health.

21
157627-2
DISPOSAL OF THE SUBJECT ASSET
In English Law, property is governed by the principle that no person can acquire better title
to an asset transferred to him than that held by the transferor. This applies whether it is in
regard to ownership or the encumbering of title by another interest such as a charge.
However, for the sake of fairness and functioning of commerce, there are certain statutory
and common law exceptions to this rule whereby a third party may acquire a good and
unencumbered title and, in some cases, give effective charges despite third party interests in
the goods. There are also certain statutory exceptions which in effect override the legal
mortgage that applies to Chattel Securities. In practice, where a lessor has at the beginning
of the transaction acquired good title to the assets to be leased to the lessee, there are only
two likely circumstances in which a supposed sale by a rogue lessee will terminate the
lessor's title to the goods: first, under the provisions of the Hire Purchase Act 1964, where a
motor vehicle has been let on hire purchase and the rogue hirer sells it to a third party who is
not a financier or in the motor trade, the lessor will not be able to recover title or possession
of the vehicle from such person. (If the sale is to another finance house or person in the
motor trade, then recovery can be effected). Second, where leased goods are sold by a
landlord exercising a right of distress for rent the lessor may lose the title to the goods
leased. This is discussed further below.

SOVEREIGN ACTION
As with any form of asset security, there is a risk of the security being defeated by sovereign
action of a government - such as expropriation for the duration of a war. It is unlikely that
goods will be expropriated by the United Kingdom government without compensation.
With overseas governments, and in particular Third World governments, the likelihood of
expropriation without compensation is higher. You should also be aware that if your lessee
is a foreign state organisation there may conceivably be problems in enforcing the contract
against them.

DIMINUTION OF VALUE BY FAILURE TO TAKE SUPPORTING

SECURITY
The value of the leased assets may be far less than anticipated because of the failure of the
lessor to take security over supporting assets necessary for the enjoyment of the primary
asset; for example, if the lessor lets on hire computing equipment then there may well be
computer software which constitutes a separate asset but which is necessary for the
functioning or sale of the primary asset over which the lessor has acquired title. Further, the
asset may be affected by patent or other intellectual property licences under which the assets
are enjoyed by the lessee, but which terminate on the lessee's insolvency or the transfer of
the asset. Unless the lessor has taken a valid charge or some form of assignment over these
associated assets, the lease on the principal asset may be worth much less than originally
calculated.

SET OFF AND COUNTER CLAIM

Where a lessor is taking a novation of a supply contract, it may well be that the right to
purchase the equipment may be defeated in whole, or in part, by set offs or counter claims
of the supplier, who may seek to set off monies owed to it by the prospective lessee against
payments in practice made by the lessor under the novation agreement. The lessor in order
to protect his title may then be blackmailed into paying more for the asset than is actually
due, especially if the lessor is not prepared to meet these responsibilities or cannot due to
insolvency. Furthermore, where a lessor is purchasing assets through the medium of a
purchase agency agreement granted to the lessee and the lessee has not fully discharged its
liability to the supplier, title to the appropriate equipment may not actually pass

22
157627-2
notwithstanding that the lessor has paid what it considers to be the full purchase price. It is
therefore prudent when reimbursing lessees for goods purchased to obtain evidence of full
payment from the supplier before payment is made to the lessee.

INSURANCE
If the asset is damaged or destroyed the lessor will look to the proceeds of the insurance on
that asset for its security. If the insurance cover is inadequate, or the benefits of the cover
have not been properly transferred to the lessor, or the insurance does not cover the
appropriate risks, then clearly the security will be worthless or diminished. It is worth a
finance house taking advice from its brokers upon contingency insurance to cover the
prospect of the lessee's insurance not being fully effective.

LANDLORD’S RIGHT OF DISTRESS

A landlord has the right to distrain for rent on any premises where the leased goods may be
held. The landlord may collect and sell any goods on the premises, and goods the subject of
a lease or hire purchase agreement may be sold free of such lease or hire purchase
agreement. A landlord's waiver of his right to distrain should always be obtained prior to
granting a facility for a lease or hire purchase agreement. Where a lease or hire purchase
agreement terminated prior to the distress being levied due to the lessee's default or an
automatic termination provision concerning distress, and as a consequence the lessee is no
longer in possession of the goods with the lessor's consent the landlord cannot distrain upon
them.

23
157627-2
 DOCUMENTING A TRANSACTION
GENERAL
These guidance notes so far have dealt with issues arising in the planning of a transaction,
and points to be taken into consideration at an early stage of dealing with a proposal from a
finance house's viewpoint. It should always be recalled, however, that an essential part of
the planning process is the making of searches and enquiries, which should include searches
of the United Kingdom Companies Registry and where appropriate the specialist registries
such as the Ship and Aircraft Registries. Furthermore, it may be necessary for searches to
be carried out in overseas jurisdictions in order to obtain other relevant information about
the various parties or the equipment.

STANDARD DOCUMENTS
If it is contemplated that standard documents will be used in relation to a proposed
transaction, it is likely that such documentation will have been designed to cover a limited
range of transactions and its limitations must be appreciated: clearly, the standard
documentation must be appropriate to fit the particular transaction in hand and even if
basically appropriate it may be necessary to make some amendments to suit the particular
circumstances of the case. When considering the documentation for use in each transaction,
it is necessary to carefully consider not only the documentation prepared between the lessor
and the lessee, but also to make sure that the documentation is compatible with supply
contracts, maintenance agreements and other agreements which are being drafted and
prepared by third parties. Until all such documents have been examined and considered, it
is not possible to effectively start to document a transaction. When using standard
documentation great care should be taken to ensure that all documents are properly dated
and all blank spaces are duly filled in with the appropriate information prior to execution
and to the lessor paying any monies in respect of the transaction.

24
157627-2
 MONITORING THE TRANSACTION
It is necessary in setting up any leasing operation in accordance with good business practice,
to set up a system for monitoring the progress of the agreement. This monitoring process
need not be seen as negative or interfering policing, but can be made part of a positive,
constructive service to the client, which will both enhance relations and improve the
prospects of an adequate information flow.

MONITORING PAYMENTS
In particular, it is obviously essential to check receipt of rental payments. If rentals are not
paid on the due date, systems need to be introduced at an early stage for sending out
reminder letters and statements on 7-14 and 21 days after due dates for payment. All such
letters must be compatible with the terms of the agreements, particularly the time of the
essence clauses; once they get beyond the reminder stage, they should make clear that the
lessee is repudiating the agreement, rather than simply being in default leading to the lessor
terminating the lease. If the lessor indicates that it is terminating the lease, rather than that
the lessee is repudiating the lease and the lessor accepting that repudiation, the lessor may
lose substantially in the amount of damages he can claim from the lessee if the matter
proceeds to litigation.

CONSIDERATIONS ON TERMINATION
When considering whether to terminate a hire purchase or leasing transaction it is necessary
for the lessor to investigate the problem and its causes and to assess the consequences of a
termination. Termination may affect the provision of grants which may be given, or cross
default provisions in other agreements, or the continuation of costs under other agreements
which cannot be terminated simultaneously with the leasing or hire purchasing agreement.
Also, before terminating the agreement, a careful appraisal should be made of the likely sale
value of the equipment and the time it is likely to take to effect a sale. If the market for the
type of goods on lease is somewhat thin, it may be better to continue to accept some reduced
rental payments even if these are not very reliable, rather than accept a definite total loss on
the sale of the goods following repossession.

INSURANCE ARRANGEMENTS
Insurance arrangements in relation to a leasing transaction frequently fail to be made by the
lessee. This exposes the lessor to risks unless he is diligent in monitoring the position. It is
advisable for lessors to make frequent checks to ensure that insurance is maintained for the
full amount and on the correct terms and that the insurance premiums are duly paid on the
due dates. Such monitoring will be facilitated if the direct undertaking mentioned above has
been obtained.

DAMAGE TO THE GOODS

Insofar as the equipment is damaged during the term of the lease, the lessor needs to be fully
aware of the damage that occurs and to ensure that repairs are properly effected. Insofar as
such damage or repairs may be covered by insurance, the lessor should make certain that
insurance monies are either applied directly in repairing and maintaining the equipment or,
where this is not done, that the insurance proceeds are used to pay out the liability of the
lessee under the lease or hire purchase agreement. If the lease or hire purchase agreement
provides for any break clause after part of the lease has expired or where the agreement is a
hire purchase agreement and allows for an early settlement or prepayment procedure to be
used it may be necessary to activate those procedures.

25
157627-2
MONITORING LESSOR'S SECURITY
Finally, during the term of the agreement it is necessary to monitor the lessor's security
(particularly with regard to guarantees or third party charges that have been taken), the
particular use to which the goods are put and the location from which they are operated. If
this and other relevant information from the customers is actually obtained (which in
practice means ensuring that the lessee honours its obligations in relation to provision of
such information) it should be possible to prevent losses being incurred or to introduce
rescue measures on early termination.

26
157627-2
 TERMINATING THE TRANSACTION
EFFECT ON OTHER AGREEMENTS
Whether the transaction terminates due to the operation of a break clause, the expiry of time
or the default of the customer, appropriate insurance arrangements need to be in effect to
cover the different circumstances in which the equipment is being operated at the
termination, and arrangements may need to be put in hand for the termination of
maintenance and other agreements associated with the leased goods. It may also be
necessary for security agreements, charges and guarantees to be enforced.

TERMINATION PROCEDURE
Where the agreement terminates due to the default of the lessee, clear termination
procedures need to be adopted by the lessor and the leasing and hire purchasing
documentation should provide for certain events of deemed repudiation to occur when the
lessee defaults. Leases should also include damages clauses which give the lessor an
appropriate but not a penal measure of damages for any repudiating breach of the lease.
Such clause will provide for the lessee to pay to the lessor a sum equal to the arrears up to
the date of termination, plus interest, plus future rentals discounted to the present day value,
less the sale proceeds of the equipment. In this regard the lessor must use his best
endeavours to sell the equipment or to re-hire it at the best market rate. It is most important
that a lessor not only does this, but is clearly seen to have done it and therefore the rule in
the finance industry of "Getting Three Quotes", is not a bad one to follow. Where at all
possible, such quotes should be in writing. If it is proposed that the goods be sold at
auction, care must be taken for the goods to be placed in an appropriate auction, being run
by skilled auctioneers who are experienced in dealing with goods of that particular class.
The sale of any goods of any sort should also be fully advertised, in order to protect the
lessor against claims by guarantors or other companies who have charged their assets in
support of the lessee's obligations, that the lessor has failed to sell the goods at the right
price.

REPOSSESSION OF THE EQUIPMENT

If it is necessary to repossess the equipment, it will be usually be appropriate to use the
services of outside suppliers to dismantle and store it, although it is frequently advisable to
include in the lease agreement provisions for the lessee to agree to store the equipment for a
period of six months on the lessee's premises, while the lessor tries to sell the equipment.
Repossession is frequently a different matter and needs to be handled with quite a lot of skill
and diplomacy, since it may well be difficult to obtain access to the premises in which the
equipment is situate.

MINOR DEFAULTS
The operating procedures of the lessor need to cover minor defaults, which will not
necessarily give rise to termination, but which may give rise to alternative remedies being
enforced. Also, where the lessor and the supplier are closely related it is necessary for good
communication to exist between them so that maintenance and back up services required to
remedy any defect which arises in the equipment on short notice are fully met, particularly
where the equipment is to be used on a full time basis without failing. Not infrequently if
the equipment does not work, and the supplier is not prepared to repair it, the first thing the
lessee does is to stop paying the rent under the lease agreement.

27
157627-2
 ENQUIRIES AND DUE DILIGENCE : POINTS FOR
CONSIDERATION
WARNING ON USE
These lists, procedures and enquiries are not intended to provide a comprehensive all-
purpose guide exclusive of further professional advice or enquiry, but as a guide to
structuring, processing and documenting certain hire purchase and leasing transactions. It is
unlikely that any two transactions will be precisely the same: care must be taken in every
case to take into account any unusual features of the transaction and to not only obtain
answers to enquiries, but to assess the full implications of such answers and to use sound
commercial judgment.

WHO IS YOUR CUSTOMER?

ƒ Status enquiries
ƒ Partnership/individual - make enquiries and take references of both companies and
individuals from trade sources and other banks.
ƒ Companies - is the customer incorporated in England or Wales? Carry out company
search. Check:
ƒ full name and address.
ƒ objects clauses of Memorandum to see if the Company has power to lease the
goods on HP and/or take them or give guarantees.
ƒ Directors' powers to borrow and limitation on extent of borrowing
powers/leasing powers.
ƒ no administrator / administrative receiver / receiver / liquidator appointed.
ƒ no charges or debentures preventing the leasing / guarantee transaction.
ƒ immediately prior to being committed to the transaction and the day before the
day of the transaction, repeat searches and telephone the Central Registry at the
court (telephone: 020 7947 7328) to see if any petition to wind up the Company
or to appoint an administrator has been lodged.
ƒ other relevant matters.

FINANCIAL ENQUIRIES
ƒ obtain copies of the last set of audited accounts of the lessee, and if they are more than
six months old, insist on and obtain the latest management accounts.
ƒ obtain details of projects for which financing is required, cash flow projections, profit
forecasts - check assumptions in cash flow and profit forecasts.
ƒ make staff and site visits and enquire of customers' experience in using similar goods -
technical and manpower back-up and resources.
ƒ obtain customers VAT number.
ƒ what type and amount of financial facilities are required - leasing, and hire purchase,
chattel mortgage, other?

WHAT ARE THE GOODS?

ƒ Obtain full details of the goods:
ƒ full description and obtain sales material brochures etc.
ƒ itemised specification of goods and price.
ƒ details of main contractual terms:
ƒ price
ƒ currency of price
ƒ stage payments

28
157627-2
 ƒ method of payment - letters of credit, cheque etc.
ƒ method of transport and delivery
ƒ insurance
ƒ installation and premises where the goods are to be installed
ƒ has the customer paid the price or any part of it? Has VAT been paid or the
instalment?
ƒ obtain copy of all contract documents even if not signed yet.
ƒ copy invoice.
ƒ details of customer training, product liability and health & safety concerns.

ƒ Make enquiries as to the goods within the trade as to quality, reliability etc.

ƒ Searches to be made in respect of goods:

ƒ Company search - charges
ƒ Search at Royal Courts of Justice - Bill of Sale Registry
ƒ HPI Search

ƒ Make visit to site of goods to see they actually exist.

ƒ How is the bank to obtain title to the goods?
ƒ Agency Agreement
ƒ Novation
ƒ Sale and lease/hire back?
ƒ Other

WHO IS THE SUPPLIER?

ƒ Status enquiries
ƒ company
ƒ partnership/individual
ƒ company searches / bankruptcy searches
ƒ check on company search:
ƒ incorporation in England or Wales
ƒ name and address
ƒ power to contract
ƒ no administration / administrative receiver / receiver / liquidator.
ƒ no charges on plant being sold.

ƒ Does the supplier own the goods?

ƒ is the Supplier a principal or an agent?
ƒ is there a retention of title clause in the sale contract?
ƒ evidence of title - invoices are not necessarily evidence of title - see supply
contract - registration of charges.

ƒ Financial enquiries
ƒ obtain accounts of supplier
ƒ does supplier manufacture.
ƒ does supplier maintain the goods.
ƒ extent of supplier's manpower resources.

ƒ Make credit reference enquiries and enquiries in trade

29
157627-2
ƒ What insurance cover does the supplier have for?
ƒ Product Liability and does it cover indemnities given to third parties
ƒ Third Party loss including consequential loss.

ƒ Product liability Indemnity

Will the supplier (if located outside the EEC) give an indemnity to the finance house
for product liability incurred by the finance house?

INSURANCE
ƒ Obtain details of customer insurance and its insurance broker
ƒ Check insurance to see if it covers appropriate risks and that brokers' undertakings
will be given by an appropriate time and in an appropriate form.

PREMISES FOR INSTALLATION

ƒ Full address
ƒ Leasehold - term of lease? Restrictions on use? Planning permission?
ƒ If premises are leasehold, obtain name and address of freehold owner and all
intermediate landlords.

WHAT SUPERVISORY BODY (IF ANY) CONTROLS THE USE, SAFETY

AND OPERATION OF GOODS?
ƒ Who is the supervisory body?
ƒ Mining Inspectors? Department of Trade - CAA - relevant Rail authority - Health and
Safety Executive - Other.
ƒ What requirements have they in the transaction?

DELIVERY ARRANGEMENTS
ƒ How are goods being delivered?
ƒ Road
ƒ Rail
ƒ Air

ƒ Delivery address

ƒ Shipping agent’s name, address and reference.

ƒ What insurance is being effected? Who is entitled to the benefit of insurance?

ƒ Import duty
ƒ how much
ƒ who is paying it?
ƒ VAT
ƒ How much
ƒ Who is paying it?

ƒ Shipping documents (if any) - details

30
157627-2
GRANTS
ƒ Are any grants available?
ƒ What details are needed? Who is obtaining form?
ƒ Who has to apply?
ƒ What is the effect of the grant on the transaction?

CURRENCY OF PURCHASE
ƒ If not sterling, what currency?
ƒ Who is having to buy currency? Who is buying forward currency? At whose risk and
instructions is currency being bought?

METHOD OF PAYMENT - LETTERS OF CREDIT

ƒ Terms of credit required
ƒ Shipping documents and relevant details.

HOW IS THE BANK FUNDING THE TRANSACTION?

ƒ Third party involvement
ƒ Credit lines
ƒ Head lease / sub lease structure
ƒ Other

SECURITY DOCUMENTS
ƒ Guarantees
ƒ check status of guarantor, full financial enquiries.
ƒ full company searches - same as hirer but check:
ƒ power of company to guarantee
ƒ give security
ƒ mortgage.
ƒ Is the guarantor receiving adequate value from:
ƒ the lessor
ƒ the customer.
ƒ in return for giving the security
ƒ relationship of guarantor to principal
ƒ is any unlawful preference being given to the lessor over the creditors of
the hirer
ƒ Terms of guarantee and cover required.

ƒ Mortgage/charges
ƒ check title to assets over which charge is given.
ƒ prior charges liens etc. company search
ƒ inspect goods exist
ƒ agree mortgage documents
ƒ check procedure for registration of mortgages at:
ƒ Land Registry
ƒ Companies Registry
ƒ Land Charges Registry
ƒ Ships Registry
ƒ Aircraft Registry

ƒ Check Terms of Guarantee

31
157627-2
ƒ Protect priorities of the charge where appropriate by serving Notice of Assignment eg.
insurances, charges on contracts, book debts etc.

ƒ Check all insurances in place and all brokers undertakings duly given.

UNUSUAL TRANSACTIONS
ƒ Does this transactions have any unusual characteristics?
ƒ If so, what are they and what are their implications?
ƒ Is your customer, or any company giving security, incorporated outside England or
Wales?
ƒ Is your customer going to operate the goods outside England and Wales?
ƒ Do you need to take advice concerning the transaction or any part of it from:
ƒ English lawyers
ƒ Overseas Lawyers
ƒ Accountants
ƒ Insurance Brokers?

32
157627-2
 LONDON

Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y 0LS

Tel: ++ 44 (0) 20 7842 8000

Fax: ++ 44 (0) 20 7842 8080

E-mail: [email protected]

BRISTOL

Saint Bartholomews
Lewins Mead
Bristol BS1 2NH

Tel: ++ 44 (0) 117 930 9500

Fax: ++ 44 (0) 117 929 3369

E-mail: [email protected]

GUILDFORD

Tempus Court
Onslow Street
Guildford
Surrey GU1 4SS

Tel: ++ 44 (0) 1483 407 000

Fax: ++ 44 (0) 1483 407 070

E-mail: [email protected]

MANCHESTER

22 St John Street
Manchester M3 4EB

Tel: ++ 44 (0) 161 834 2100

Fax: ++ 44 (0) 161 834 6862

E-mail: [email protected]

WEBSITE

www.laytons.com

© Laytons 2004

______________________________________________________________________

For further information please contact Patrick Kelly on 020 7842 8000 or email
[email protected].

If you wish to copy this document please do so, but please also acknowledge its source. This document is
a general guideline only; action should be taken only after specific advice has been obtained.

33
157627-2