The Negative Pledge Agreement is commonly used in Malaysian financing transactions where lenders seek protection without taking formal security over assets. It serves as a crucial risk mitigation tool in both secured and unsecured lending arrangements, particularly in corporate finance and general banking facilities. The agreement operates within the Malaysian legal framework, particularly under the Contracts Act 1950 and Companies Act 2016, and typically accompanies facility agreements or loan documents. It includes detailed provisions about prohibited security arrangements, exceptions for permitted security, monitoring mechanisms, and consequences of breach. The document is especially relevant in situations where taking formal security is impractical, costly, or unnecessarily complex, while still providing lenders with meaningful contractual protection against the borrower granting security to other creditors.
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1. Parties: Identification of the parties entering into the agreement, including the borrower/obligor and the beneficiary of the negative pledge
2. Background: Context of the agreement, including reference to any facility agreement or main transaction
3. Definitions and Interpretation: Key terms used in the agreement, including 'Security Interest', 'Permitted Security', and interpretation rules
4. Negative Pledge Covenant: Core provision where the obligor commits not to create or permit to subsist any security interest over its assets
5. Permitted Security: Exceptions to the negative pledge covenant, listing allowed security interests
6. Representations and Warranties: Obligor's confirmations regarding existing security interests and capacity to enter agreement
7. Duration: Period for which the negative pledge remains in effect
8. Further Assurance: Obligation to execute additional documents or take actions to give effect to the agreement
9. Enforcement: Rights and remedies in case of breach
10. Notices: Process and requirements for giving notices under the agreement
11. Governing Law and Jurisdiction: Malaysian law as governing law and jurisdiction for disputes
12. General Provisions: Standard boilerplate clauses including severability, entire agreement, and amendments
1. Security Interest Notification: Required when parties agree to notify the beneficiary of any request to create security interests
2. Specific Asset Protection: Used when certain key assets need special protection or monitoring
3. Multiple Jurisdictions: Required when the obligor has assets in multiple jurisdictions
4. Information Undertakings: Added when regular reporting of assets or potential security interests is required
5. Subordination Provisions: Included when ranking of obligations needs to be addressed
6. Group Company Obligations: Required when negative pledge extends to subsidiaries or group companies
1. Existing Security Interests: List of all existing security interests that are carved out from the negative pledge
2. Form of Compliance Certificate: Template for periodic confirmation of compliance with negative pledge obligations
3. Protected Assets: List of specific assets subject to enhanced negative pledge protection
4. Permitted Security Interest Categories: Detailed categories and limits of permitted security interests
5. Form of Notice: Template for notifications required under the agreement
6. Group Structure: Corporate structure chart showing relevant group companies covered by the agreement
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