Module 4 · Chapter 8

The Breach, the Waiver and the Blocked Account

The borrower breaks a financial covenant. This chapter shows how the bank keeps its rights, waives the breach for a price, and whether blocking one account changed its charge over the book debts.

≈ 11 min read 8-question test

In this chapter

  • Why a covenant breach lets the Bank act, but not yet enforce
  • How a reservation of rights and a waiver on terms protect the Bank
  • Whether blocking one account could change the charge over the book debts

8.1A covenant breach in one paragraph

Loan agreements set financial covenants: tests of the borrower's figures, made every quarter. A borrower that fails one commits an Event of Default. The lender may then cancel the loan and demand all of it back at once, which is called acceleration.

But a default alone does not let the lender take the security. Under the Debenture, the Bank must also give the Company written notice.

Key point

A default gives the Bank a choice. It can enforce, wait, or forgive the breach for a price. Here it forgave the breach, and one of the terms was meant to make its security stronger.

Also in this chapter

  1. The interest cover test the Company failed
  2. A default is not yet enforcement
  3. Keeping the Bank's rights while it decides
  4. Waiving the breach for a price
  5. Why the waiver left the security untouched
  6. A fixed charge in words, a floating charge in practice
  7. What the block changed, and what it did not
  8. Your job

Preview

The rest of this chapter opens with a free account. Every edition is free to read until 31 January. Open a free account by the end of that day and keep every edition published by then, for good. Open it from the edition home →