Given the nature of the form of the LMA`s partial participation agreement – the underlying loan is the property of the donor – there is a potential risk that the transaction will be wrapped up if the transfer or increase took place on the eve of bankruptcy. However, an increase during a moratorium (the period following the appointment of a director is effectively a freeze on creditors acting against the debtor) would in practice require the cooperation of the administrator and is therefore unlikely to be cancelled at a later date (although the actions of a director could still be challenged by creditors or a liquidator at the request of the court). The Spanish court agreed that the loan had not been granted and that the undertaking had not been implemented. The court was strongly insinsued by the fact that the leading bank is the only entity capable of exercising a right against the borrower, which made it impossible to rescripte the partial participation. Partial participation is a means by which a lender can transfer its risk to another lender as part of a loan. Partial participation may be funded or unfunded. If it is not funded, it is called “partial risk participation.” On the reference date, the issuer will enter into a bank savings sub-participation contract (the bank savings sub-participation contract). Although there is no automatic right of the sub-participant, in the event of insolvency of certain market players, it is common for an “increase clause” to be included in the sub-participation agreement that gives the participant the right to (i) the perception of a sub-participant to a lender in a record position (if it is granted direct rights and obligations to the borrower), or (ii) the transfer of the loan to a third party (with the intention of the operator of a new interest with such a third party). This means that a leading bank, which uses an under-participation agreement while starting with the application, may have difficulty enforcing the rules.
If the borrower discovers the partial participation and objects to the payment on the basis that the debt is contested (a credito litigioso) or on the basis that the effective creditor has lost the advantage of the corresponding guarantee, he may ask the court to terminate the execution of the guarantee on the basis that the partial participation must be rectified as a transfer and that this assignment does not include the corresponding guarantee. Similar problems could arise in the event of insolvency.