Articles

Dealing with Iranian "snap back" sanctions in finance documentation

Dealing with Iranian "snap back" sanctions in finance documentation

Dealing with Iranian "snap back" sanctions in finance documentation

22.12.2015 NL law

EU and US legislation lifting or waiving current sanctions applicable to the Iranian market will be without prejudice to the reintroduction of restrictive measures in the event of significant non-performance by Iran of its commitments under the JCPOA (Joint Comprehensive Plan of Action). 

 

Taking these "snap back" provisions into account, finance documentation underlying future Iranian deals will require careful drafting of termination and mandatory repayment clauses, mirroring the applicability of the EU grace period or alternatively the absence of US grandfathering should sanctions indeed "snap back".

On 18 October 2015, the European Union adopted framework legislation in order to terminate its nuclear-related economic and financial sanctions against Iran (Council Regulation (EU) 2015/1861Council Implementing Regulation (EU) 2015/1862 and Council Decision (CFSP) 2015-1863). This framework legislation will amend the existing nuclear-related sanctions towards Iran and related entities and persons under Council Regulation (EU) 267/2012 and come into force on implementation day, following which a number of the existing EU sanctions measures will be lifted. The United States government also issued certain sanction waivers on 18 October 2015, which will come into effect on implementation day. Finally the Swiss government, announced on 21 October 2015 that it would also ease its sanctions measures on implementation day, in line with the EU/UN.

The EU legislation provides, however, that its commitment to lift current sanctions is without prejudice to the reintroduction of restrictive measures in the event of significant non-performance by Iran of its commitments under the JCPOA (Joint Comprehensive Plan of Action). These so called "snap back" provisions would be reintroduced in accordance with normal sanction procedures, following Iran breaking the provisions of the JCPOA. As with the EU sanctions, if Iran violates the JCPOA, U.S. sanctions may also “snap back” into effect and apply in the same manner as they applied before the JCPOA.

 

A significant difference between the "snap back" of EU and U.S. sanction provisions is however, that Regulation 2015/1861 provides that, in the event that sanctions are reintroduced, adequate protection will be provided for the execution of contracts concluded whilst the sanctions were lifted. The U.S. government has, however, indicated that it will not “grandfather” Iran-related agreements entered into between implementation day and the moment snap back of U.S. sanctions is effective. Thus, Iran-related activities pursued after the reinstatement of U.S. sanctions could potentially be sanctionable following the moment of snap back, while EU sanctions allow for a grace period.

In either case, companies signing deals with Iran after implementation day should carefully determine the wording of the termination clauses in their contracts with Iran, providing that the contract could be terminated in the event sanctions were snapped back. Companies only subject to EU sanctions could mirror their termination clauses to the current "breach of sanction" provisions commonly found in Dutch law governed finance documentation, which provisions allow for a mandatory prepayment or event of default following a breach of sanctions (e.g. following a snap back). The mandatory prepayment of outstanding commitments would in itself be permitted, provided such prepayment takes place during the grace period and constitutes an adequate protection in accordance with  Regulation 2015/1861. Companies also, or only, subject to U.S. sanctions may, however, not be as lucky given the absence of any grandfathering and the seemingly impossibility of getting prepaid by a sanction party that was perfectly acceptable a day earlier.

It will prove interesting to see if and how Dutch law governed finance documentation will tackle these termination clauses and the effects of snap back sanctions, not only because institutions such as the LMA have thus far not yet shown a great inclination to establish standardized sanction wording, let alone wording appropriate for snap back of such sanctions, but even more so because the burden costs of such termination would fall with the Iranian counterparty. The latter may prove the biggest hurdle of them all, as rumor has it that Iranian contract law does not recognize the imposition of sanctions as a force majeure event.

This article was published in the Banking and Finance Update of December 2015.

Related news

25.04.2018 EU law
25 April 2018: Stibbe sponsors LPEA Insights conference in Luxembourg on 'Building the Real Economy'

Conference - LPEA, Luxembourg Private Equity and Venture Capital Association, organises a conference in Luxembourg, which brings on stage General Partners (GPs) and Limited Partners (LPs) to discuss and showcase the private equity sector from the perspective of local practitioners, together with additional contributions from guest speakers specially invited to the event. Stibbe Luxembourg is a proud sponsor of this event, which some of our lawyers will attend.  

Read more

11.04.2018 NL law
Court of Appeal: Deed of pledge does not cover all present receivables

Short Reads - 's-Hertogenbosch Court of Appeal denies pledgee's claim that all present and future receivables of the pledgor were pledged to it by a deed of pledge dated 20 January 2014 and ruled that the receivables listed in the schedule attached to the deed of pledge were leading to establish on which receivables a right of pledge was created.

Read more

19.03.2018 EU law
The third-party effects of cross-border assignments of claims – Draft EU Regulation aiming to achieve legal certainty

Short Reads - On 12 March 2018, the European Commission (EC) published proposals on covered bonds, cross-border distribution of investment funds and cross-border transactions in claims and securities. The proposals are linked to the 2015 Action Plan on Capital Markets Union (CMU) and the European Commission's Mid-term Review that was published in June 2017.

Read more

10.04.2018 NL law
Inkoop van eigen aandelen door beursvennootschappen

Articles - Nu de financiële crisis aan zijn eind lijkt te zijn gekomen, en veel beursgenoteerde ondernemingen een goed gevulde kas hebben, lijkt de inkoop van eigen aandelen weer in zwang te raken. Onder strikte voorwaarden is de inkoop van eigen aandelen door een uitgevende instelling uitgezonderd van het in de Market Abuse Regulation geformuleerde marktmanipulatieverbod en het verbod op het gebruikmaken van voorwetenschap. In dit artikel bespreekt Roderik Vrolijk vanuit een praktisch perspectief deze uitzonderingen.  

Read more

Our website uses cookies: third party analytics cookies to best adapt our website to your needs & cookies to enable social media functionalities. For more information on the use of cookies, please check our Privacy and Cookie Policy. Please note that you can change your cookie opt-ins at any time via your browser settings.

Privacy – en cookieverklaring