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Bank loan with comfort letter |
We are a local bank in Tanzania and have financed a subsidiary of a large company based in Europe. The local subsidiary is having major issues with land that it owns for a bio diesel project and is at the verge of defaulting on its loan. We have contacted the guarantor, the parent company, and they have come back telling us that it is not a guarantee but a comfort letter that they had given us. We have the land as the security here but would also like to invoke on the guarantee. What should we do? |
DI, Dar |
As a banker you can only recover the amounts owed to you and no additional amounts recovered can be credited to your account. You have mentioned that you have enough collateral here in Tanzania and it would perhaps be easier and wise to recover from the tangible asset you have at hand and at home than to try to invoke the guarantee. You might however have your reasons.
Coming to the comfort letter, some financings for subsidiaries of large companies are given on the basis of comfort letters from the parent rather than full guarantees. This kind of comfort letter might provide some extra sleep for your bank managers but its legal significance is very limited if it exists at all.
Most comfort letters state in clear terms that it does not give rise to any legal obligation and are usually simple acknowledgements that the parent company is aware of the facility and does not have any present intention of withdrawing support from the borrower or materially changing the nature of its business. Very likely the onus will be on you, the bank, to prove that there was an intention to create legal relations.
In foreign case law if the comfort letter merely creates an intention or a policy by the donor to ensure that the subsidiary is in a position to meet its liabilities to the bank, it is likely that the letter simply constitutes a moral obligation rather than a legal one. This is particularly true if the bank charges a higher interest for the additional risk of not having a full guarantee.
In your instance you seem to believe |
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you have a guarantee whilst the parent company is clear that it is a comfort letter. The contents and not necessarily the heading of the letter will determine what it is. Your attorneys can guide you further after reading the entire document. |
Fair competition commission query |
I have been requested by the Fair Competition Commission (FCC) to appear before it where they claim that they are investigating about a certain transaction my factory entered into with another factory owner. My lawyer who is probably looking for business tells me that this is a serious matter and that we should take this up to the Ministry of industries. We have a valid business licence; we pay taxes; we don’t cheat. Why does this FCC body interfere with my constitutional right of freedom? |
ED, Dar |
In our experience no businessman ever admits he has cheated. Whilst we are unsure if your lawyer is short of business, what we can assure you is that he is not guiding you properly. Complaining to the Minister of Industries will not help as the FCC is an independent body that is established by the Fair Competition Act 2003 which is meant to promote and protect effective competition in trade and commerce, to protect consumers from unfair and misleading market conduct and to provide for other related matters.
We acknowledge that you have a valid business licence and you pay your taxes. That is not what the FCC investigates. It seems like when you entered into this transaction with the other factory, you did not get approval for such transaction from the FCC. This is our best guess as we do not have all the information.
Under the Fair Competition Act and the Fair Competition Commission Procedure Rules 2010, the FCC has powers to summon a person to supply information, document or evidence whereby it shall state the legal basis and the purpose of the request, specify what information is required, fix the time within which it is to be provided and indicate penalties for not complying |
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with the summons. The FCC also has powers to issue search warrants which shall specifically identify the premises to be entered and searched.
We also believe that what you seem to think is a request, is actually a demand by way of a summons to supply the information and appear before the FCC. It is not optional but compulsory. You should immediately comply with this as it could have serious consequences for you and your company. The issue of constitutional freedom does not arise here. |
Detention of my Passport |
In the course of investigating a criminal case against my elder brother, police officers came to my house, asked me some questions about the disappearance of my brother whom they believed had committed a criminal offence and took my passport including some cash. The police say they will not release my passport as I may be required to come and testify and that I was a flight risk. It has been six months since the incident and I need guidance on what to do. I am unable to travel and am grounded. |
FL, Dodoma |
Assuming you have not withheld any material information from us, the conduct of the police officers is not appropriate. While the law allows the police investigation, without making a prior charge or arrest, to detain as prospective evidence any property found in course of investigation and which he has reasonable grounds to believe to be material evidence to prove the commission of a crime, the freedom of individuals i.e. privacy and his possession are not to be invaded except for the most compelling reasons. In your instance the police cannot justify the taking of properties in a situation where you have not been arrested or charged and where circumstances do not suggest at all that there are reasonable grounds for believing the goods in question are fruits of the crime or are material evidence to prove the commission of the crime. We advise you to complain to the Director of Public Prosecution or file a recovery suit against the government for your goods including a claim for general damages.
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have legal issues, you are strongly recommended
to contact your Attorney. |
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