As we have seen above, the traditional purpose of taking security in a financing transaction is problematic in a project financing. Enforcing the lenders’ security package may be difficult for a number of reasons:

(a)        government consents are likely to be required for a change in ownership of the project company or a sale of project assets – a project concession can’t simply be transferred to another party;

(b)        will the local courts enforce agreements governed by foreign law (e.g. the loan agreement) or the judgments of foreign courts or arbitral awards?

(c)        in some jurisdictions there might be a moratorium on insolvency, effectively preventing the lenders from enforcing their security;

(d)        in many jurisdictions, enforcement remedies may only be capable of being exercised through the courts;

(e)        judicial sale may be the main (or only) enforcement remedy and the concept of a receiver (or a similar concept) may not exist;

(f)         substantial preferential creditors may rank ahead of all types of security.

At the outset of the transaction the lenders will need to understand the enforcement position in the relevant jurisdiction so they can be prepared if things go wrong during the project term.