The Negative Pledge Agreement is a fundamental document in Pakistani banking and finance practice, commonly used in both domestic and cross-border financing arrangements. It serves as a key protection mechanism for lenders by preventing borrowers from granting security interests over their assets to other creditors, thereby maintaining the lender's position regarding the borrower's unencumbered assets. The agreement must comply with Pakistani law, particularly the Contract Act 1872 and relevant banking regulations, and typically forms part of a larger financing package. It is essential in situations where lenders provide unsecured facilities but want to ensure their position isn't prejudiced by subsequent secured borrowings. The document includes detailed provisions on prohibited actions, exceptions, monitoring requirements, and consequences of breach, all tailored to be enforceable under Pakistani law.
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1. Parties: Identification of the pledgor and pledgee/beneficiary, including their full legal names, registration details, and addresses
2. Background: Context of the agreement, including reference to any related facility agreements or main transactions
3. Definitions and Interpretation: Key terms including 'Security Interest', 'Permitted Security', 'Assets', and interpretation rules
4. Negative Pledge: Core covenant not to create or permit to subsist any security interest over the assets
5. Permitted Security: List and description of exceptions to the negative pledge covenant
6. Representations and Warranties: Pledgor's statements regarding authority, ownership of assets, and absence of existing encumbrances
7. Duration: Period for which the negative pledge remains in effect
8. Compliance and Reporting: Requirements for periodic confirmation of compliance and notification of potential breaches
9. Events of Default: Circumstances constituting breach and their consequences
10. Remedies: Rights and remedies available to the beneficiary upon breach
11. Governing Law and Jurisdiction: Confirmation of Pakistani law as governing law and jurisdiction for disputes
1. Security Confirmation: Additional section required when the negative pledge is part of a larger security package
2. Further Assurance: Optional provisions requiring the pledgor to take additional actions to protect the beneficiary's interests
3. Costs and Expenses: Include when there's a need to specify responsibility for costs related to preparation and enforcement
4. Assignment and Transfer: Required if parties want to allow or restrict the transfer of rights under the agreement
5. Notices: Detailed notice provisions needed for more complex arrangements or when parties have specific communication requirements
6. Amendments and Waivers: Required for more formal agreements where modification processes need to be specified
7. Severability: Include when there's particular concern about enforceability of certain provisions
1. Schedule 1 - Assets: Detailed list of assets covered by the negative pledge
2. Schedule 2 - Existing Security Interests: List of pre-existing security interests that are permitted to continue
3. Schedule 3 - Form of Compliance Certificate: Template for periodic compliance confirmation by the pledgor
4. Schedule 4 - Permitted Security Details: Detailed description of permitted security interests and their conditions
5. Appendix A - Corporate Authorizations: Copies of relevant corporate approvals and authorizations
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