There is a very common, reoccurring urban (actually commercial) myth that, if ever a client receives bank documents* for signing, they either:
- are ‘advised’ (by a non-lawyer…), or
- somehow, completely misguidedly, believes,
they only need such to be “witnessed by a lawyer.”
Sidenote: they almost-always are at the last minute and ‘urgent’ too.
What’s often involved in such ‘Bank Documents’
*Now firstly, any such ‘bank documents’ may be, and usually are, comprised of a myriad of complex financial and legal instruments including but not limited to: facility offers, loan agreements, terms and conditions, guarantees (with indemnities), security documents (e.g. mortgages or ‘general security agreements’ for the PPSR) etc.
Next, the relevant signatory-parties could be:
-individuals in their own right and giving ‘mere’ guarantees…
-directors on behalf of the borrower entity also giving personal guarantees,
-where there’s multiple parties, then we can have issues such as joint & several liability, and
-if those borrower and/or guarantor parties are with same financial institution, there may also be issues such as cross-collateralisation,
(and don’t get me started with ‘sophisticated investors’ and it’s just a ‘standard’ convertible note guff, pfft!)
and so on.
Now at this point, if your eyes are starting to spin in circles, that’s fine because let’s go back to my initial statement.
Despite the recent Banking Royal Commission… and in their understandable desire to absolve themselves of any risk, financial institutions often may send these intricate financial and legal instruments at the last minute. Critically however please note, if they only needed such to be witnessed, then you wouldn’t need a lawyer. All you would require is an independent adult of 18 years or older…
What they are actually referring to is known as “obtaining an independent lawyer’s advice and certification“, which the below processes necessarily needs to be properly undertaken by a suitably-experienced lawyer to:
- meet their duty of care,
- put their Professional Indemnity insurance-cover on the line; and
- ensure their firm’s own appropriate risk management-protocols are satisfied.
The Independent Solicitor’s Advice Certification (“ISAC”) process
Accordingly the below is a very generalised and basic summary of the minimal requirements which are actually involved in any such ISAC process:
a) firstly, all the the proposed signatory-parties themselves need to carefully read and review all those bank documents to the best of their ability and note any concerns or queries they may have (for the lawyer).
Note: it’s also not uncommon for those parties, when they do this initial step, to identify there has been either a error or ‘something extra’ has been put in the final kit bank documents which they were not fully aware of or had agreed to. So at that point they simply need to go back to the bank and clarify /resolve those issues, rather than indifferently-forward such on to their lawyer
b) once the signatory-parties reasonably believe the bank documents are correct, the lawyer needs to be provided with, and then appropriately reviews, all the ‘bank documents’. Note: not just the guarantee or the ISAC certificate (also, guarantors they should not just look at the guarantee documents and, often, related security documents rather also the entire ‘upstream’ facility offer/loan agreement terms & conditions, amongst other matters).
Unsurprisingly, with sometimes in excess of 100+ pages of documentation, the lawyer may actually need some time to the review, and then coordinate a mutually convenient time to meet with the signatory-parties for the next stage.
- Please note: for the avoidance of doubt, under no circumstances can the lawyer proceed with the ISAC process if any of the relevant signatory-parties have not read all those relevant bank documents.
c) then at the meeting with all the signatory-parties, the lawyer will need to specifically discuss and advise them in relation to all the relevant risks, obligations, limitations and latent liabilities aspects etc which may entail with such. Now again if any of the parties don’t at least understand the material difference:
- between what guarantee and indemnity is,
- what a loan agreement versus a security is,
- what joint and several liability means,
- what the effect potentially can be on their credit rating
- that they could be liable for more than just the balance-owing debt amount (e.g. default interest and costs)
(and these are only starting points),
then these issues have to be explained (i.e. advised) in suitably clear and understood terms by the lawyer to the signatory-parties before the lawyer can be professionally satisfied and elect whether they will continue with the ISAC process. Funnily enough, this is not that different to a specialist surgeon explaining to a patient all the relevant risks in a considering whether to undergo a particular procedure.
d) after the completion of which, and the lawyer is satisfied everyone has understood such and they’ve addressed all the parties queries/provided their requisite advice, only then may the lawyer (but notably are not required to) complete the ISAC certificate as well as witness the relevant documents being signed (please note all of this may take up to an hour, and possibly longer if parties have queries or concerns).
At this point hopefully you may appreciate there is actually a lot more to this ‘bank documents’ process. Yet it still can be effectively done, so long as it’s done in a proper and sequential manner.
Lastly and purely FYI – I’m actually the lawyer who has written and presented the CPD Training module for all the lawyers in Western Australia on “Lawyers’ Advice Certificates” https://elearning.lawsocietywa.asn.au/online-courses/lawyers%E2%80%99-advice-certificates – whether for borrower or guarantors, SMSF limited-recourse borrowing, franchisor certification, retirement villages contracts etc.