Convertible Loan Agreement Template for Ireland

A Convertible Loan Agreement is a sophisticated financing instrument that combines elements of debt and equity investment, allowing you to provide or receive funding while maintaining flexibility for future conversion to shares. Under Irish law, this document must comply with the Companies Act 2014 and relevant Central Bank regulations, making it a legally robust solution for both lenders and borrowers seeking strategic financing arrangements.

When do you need this document?

You need a Convertible Loan Agreement when your company requires bridge financing between equity rounds, when valuation discussions are premature, or when you want to defer complex pricing negotiations to a future qualified financing event. This document is particularly valuable for early-stage companies seeking growth capital from individual investors, venture capital funds, or investment companies. It's also essential when you're an investor looking to support a company while maintaining the option to convert your loan into equity shares based on future performance milestones or funding events. The agreement is commonly used in scenarios where traditional debt financing lacks the upside potential that investors seek, yet equity investment may be inappropriate due to valuation uncertainty.

Key legal considerations

Your Convertible Loan Agreement must carefully address conversion triggers, which typically include qualified financing rounds, company exits, or maturity dates. The conversion price mechanism is crucial and often involves discounts to future valuation or valuation caps to reward early investors for their risk. Interest provisions must be clearly defined, including whether interest compounds and how it's treated upon conversion. Security provisions may be necessary, particularly for larger loans, and must be properly registered with the Companies Registration Office. Investor protection clauses such as anti-dilution rights, information rights, and consent requirements for major corporate actions should be carefully negotiated. Default provisions and remedies must be proportionate and enforceable under Irish law. If multiple lenders are involved, consider appointing a Security Trustee to manage collective interests and streamline decision-making processes.

Legal requirements in Ireland

Under the Companies Act 2014, your convertible loan may require registration as a charge if it includes security over company assets, and this registration must occur within 21 days of creation. Directors must ensure the loan complies with financial assistance rules when the conversion relates to the acquisition of the company's own shares. The agreement must consider the Consumer Credit Act 1995 if the lender operates a credit business and the borrower qualifies as a consumer. Tax implications under the Taxes Consolidation Act 1997 must be addressed, particularly regarding interest deductibility and the tax treatment of conversion events. If your lender is regulated under the Investment Intermediaries Act 1995 or MiFID II regulations, additional compliance requirements may apply. Corporate governance requirements mandate that board resolutions and, where necessary, shareholder approvals are obtained before entering the agreement. The conversion mechanism must comply with share capital requirements, including proper authorization of share classes and adherence to pre-emption rights procedures.