The government Future Fund scheme, devised to help innovative companies impacted by the Covid 19 outbreak, includes solicitors in critical elements of the application and funding process.
On 20 April 2020, the chancellor introduced the Coronavirus Future Fund , a scheme designed to help innovative high-growth companies (including companies in the crypto and FinTech space) facing financial difficulties due to the Coronavirus outbreak. The programme has been developed in partnership with the British Business Bank and an initial £250 million has been made available for investment. Companies can apply until September 2020. The scheme provides convertible loans to eligible companies, on the condition that the funding matches 100% of the amount of funding from third party investors. The minimum aggregate loan amount provided under the scheme is £250,000 and the maximum amount matched by the Government is £5 million. There is no cap on the amount that the investors may loan to the investee company.
In order to be eligible, each of the investor(s) and the relevant company must meet specific criteria. The investor(s) must fall, amongst other things, within the definition of an “investment professional”, a “high net worth company”, a “certified sophisticated investor” or a “certified high net worth individual” under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The applicant company will be eligible if it is a company incorporated in the UK on or before 31 December 2019, has half of its employees based in the UK or half or more of its revenue are from UK sales. If the company is part of a group, only the parent company will be eligible. The company must also have raised at least £250,000 in equity investment from investor(s) in the last five years and none of its shares should be traded on a listing venue.
There are also some restrictions on the use of the proceeds of the convertible loan which must be complied with. For example the proceeds cannot be used to repay any shareholder borrowings, pay dividends, pay any bonuses to any employees (for 12 months) or advisory fees to any corporate finance entity or investment banks. None of the investor(s) can be “connected persons” of the investee company as such term is defined under sections 1122 and 1123 Corporation Tax Act 2010.
The British Business Bank has provided the key set of standard documents for the scheme on its website, which include: (a) the Convertible Loan Note Agreement which is a standard non-negotiable agreement to be entered between the company, the investor(s) and the scheme entity; (b) a Director’s Certificate where a director of the applicant company provides confirmation on certain matters; and (c) the company’s Solicitors Confirmation Letter pursuant to which company’s solicitor confirms details of the client account and the amounts that will be deposited by the investor(s) and transferred to the company.
As is evident, the appointment of a duly qualified and regulated solicitor by the relevant company is a critical requirement under the scheme for handling the funds and facilitating completion. The engaged solicitor on a transaction will be required to receive and hold the completion monies from the investor(s) and the scheme vehicle which is to be released to the investee company after execution of the convertible loan agreement and upon confirmation from the scheme.
In addition to the above, solicitors may be asked to advise on the scheme and its associated documents, by either an investor or the applicant company. There may also be tax implications for investors using the scheme, and so applicants and investors should take appropriate financial and tax advice prior to submitting an application.
There are some important practical considerations if a company is looking to make an application:
– start as early as possible and engage your solicitor early to avoid complications;
– the company and the investors will need to provide required know your client (KYC) information to the solicitor;
– solicitors are extra careful due to regulatory obligations when it comes to use of their client accounts. It is important therefore to provide them with all of the required documentation and details of funds flow to make them and their compliance department comfortable;
– given the current Covid lockdown situation, be prepared to use Docusign and related digital signing technology to ensure a smooth transaction;
– engage the investor to ensure they meet the requirements of the solicitor (the solicitor for the company and not the investor will be managing the funds flow process).
With early and transparent engagement with their solicitor and investor(s), elegible companies can manage a well put together scheme that can help many innovative companies in need of financial support in these difficult times.
By Abradat Kamalpour, Partner at Ashurst LLP and Architect of FinTech Legal Labs Accelerator (www.fintechlegallabs) and Ida Mokhtassi, Associate at Ashurst LLP