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The importance of representations in finance transactions

A representation is a statement of fact made to induce the party to whom it is made to enter into the agreement. Representations are commonly taken in commercial agreements where there is no general duty of disclosure on a party that enters into such contract. In facility agreements representations as to the status of the borrowing entity and the other security providers, the secured assets as well as other matters of fact, which have no other way of being safely verified, such as the ranking of the security or the absence of adverse circumstances such as borrower insolvency, are usually granted by the borrower. Without them, the borrower could remain silent on matters that might make financiers unwilling to grant the financing, were they aware of them.  The representations are therefore designed to reveal anything which might affect the bank’s decision to advance the loan.  If it turns out that any representation was indeed untrue, this should normally give the bank the right to stop

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