A partially financed participation creates new contractual rights between the existing lender and the subcontractor under the same conditions as the contract between the existing lender and the borrower. The existing lender becomes an intermediary between the borrower and the subcontractor. The subcontractor sets up funds that the existing lender lends to the borrower. The subcontractor will only be reimbursed by the existing lender when the borrower repays the existing lender. Unlike novation, there is no transfer of existing rights and the borrower is often unaware of the contract between the existing lender and the subcontractor. The underlying loan agreement between Coroin and NAMA is governed by Irish law, but for the purposes of the Court of Appeal`s decision, the parties agreed that the principles of contractual construction were the same in Ireland as in England. The Court of Appeal issued a unanimous judgment in favour of NAMA, in which it stated that it was free to transfer the loans in full to NAMA and ruled on the trial decision of Judge David Richards in favour of Mr McKillen (Patrick McKillen v Sir David Rowat Barclay &Others  EWHC 129 (Ch)). In English law, assignment is a transfer of rights; Unlike a novation, it does not transfer obligations (unlike a novation – see practice note: transfer of a loan by Novation). Fair (see Practice Note: transfer of a loan by equitable assignment) The Court of Appeal`s judgment in favour of NAMA held that the tailor-made opt-out clause exceeded the obligation to consult and allowed for restrictions for the buyer. In interpreting the clause in question, the Court of Appeal preferred NAMA`s commercial conception with regard to the motivation and effect of the non-application clause to Mr McKillen`s more literal approach to the provision in question. The new lender establishes a direct relationship with the borrower and the other parties to the syndicated credit agreement. The loan agreement should contain the form of the transfer certificate used for novation and a provision that the borrower does not object to the original lender selling its shares in the loan agreement to a new lender.
Novation is typically used for revolving credit facilities for which the original lender still has outstanding obligations, such as. B the obligation to grant future loans. The disadvantage of this method is that, when the loan is secured, the guarantee is lightened and must be renewed each time a novation is carried out and the priority of security can be negatively affected. However, this solution can be resolved by the appointment of a security trustee who holds the guarantee granted under the loan to all lenders. It is clear from the judgment of the Court of Appeal that the obligations and restrictions imposed on lenders by the authorized consultation and transfer provisions may be set aside by carefully crafted provisions that amend the standard credit agreement. . . .