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

17.01.2020 LU law
Stibbe boosts service offering in Luxembourg with new partners and counsel for asset management/funds and corporate & finance

Inside Stibbe - Luxembourg, 17 January 2020 – Stibbe reinforces its corporate & finance and asset management/funds practices in Luxembourg with the hire of Bernard Beerens (corporate partner), Audrey Jarreton (banking and finance counsel), Edouard d’Anterroches (investment funds partner), Victorien Hémery (investment funds partner), and Dayana Bert (investment funds counsel). Their arrival comes after the recent hire of tax partner Johan Léonard. All of these new additions demonstrate the firm’s commitment to expanding Stibbe’s service offering in Luxembourg.

Read more

15.01.2020 NL law
The Dutch scheme - a summary of the upcoming new restructuring tool

Short Reads - As mentioned in our earlier blog, the Dutch legislator has prepared a bill – the Act on confirmation of private restructuring plans (Wet homologatie onderhands akkoord) – introducing a framework that allows debtors to restructure their debts outside formal insolvency proceedings (the “Dutch Scheme“). We expect this highly-anticipated bill to enter into force by this summer. The Dutch Scheme combines features from the UK Scheme of Arrangement and the US Chapter 11 proceedings. Below, we summarize certain key aspects of the Dutch Scheme.

Read more

17.01.2020 LU law
Stibbe Luxembourg étend son offre de services par la venue de nouveaux associés et counsels au sein des pratiques spécialisées en gestion d’actifs/fonds d’investissement, en droit des sociétés ainsi qu’en droit financier

Inside Stibbe - Luxembourg, le 17 janvier 2020 – Stibbe renforce ses pratiques spécialisées en droit des sociétés, en droit financier ainsi qu’en gestion d’actifs/fonds d’investissement par la venue de Bernard Beerens (associé, droit des sociétés), Audrey Jarreton (counsel, droit bancaire et financier), Edouard d’Anterroches (associé, fonds d’investissement), Victorien Hémery (associé, fonds d’investissement) et Dayana Bert (counsel, fonds d’investissement).

Read more

15.01.2020 NL law
Consultatiereactie 'Wet plan van aanpak witwassen'

Short Reads - Soeradj Ramsanjhal, Karlijn van den Heuvel, Djoe Kuils, Rogier Raas, Judica Krikke en Muriël Rosing hebben een reactie ingediend op het concept wetsvoorstel ‘Wet plan van aanpak witwassen’. Dit wetsvoorstel is 2 december 2019 in consultatie gegaan en bevat verschillende voorgestelde wijzigingen van de Wet ter voorkoming van witwassen en financieren van terrorisme en de Wet op de economische delicten. 

Read more

Our website uses functional cookies for the functioning of the website and analytic cookies that enable us to generate aggregated visitor data. We also use other cookies, such as third party tracking cookies - please indicate whether you agree to the use of these other cookies:

Privacy – en cookieverklaring