CORPORATE TRANSACTIONS & COMPLIANCE BLOG

The High Cost of Appointing the Wrong Process Agent

By: Colleen DeVries, COGENCY GLOBAL INC. on Thu, Jun 02, 2016

ProcessAgentAs discussed in our white paper, “What is a Process Agent and Why Do You Need One?,” the role of the process agent when appointed in global financing contracts is to act as a representative to receive court papers that may be served on behalf of the appointing parties and to deliver such court papers pursuant to their instructions. For example, if there is a significant default under the terms of a loan agreement, court papers (such as a summons and complaint) will be served on the international borrower or issuer by the lender in the jurisdiction and court agreed to under the terms of the contracts. Since the international borrower or lender may not have a presence in the chosen jurisdiction, the court papers will be delivered to the process agent named in the financing agreements.

The good news is that the majority of global financing transactions are successfully completed without any default being triggered. In other cases, the parties find a way to “work out” any issue and may agree to amend the financing contracts to extend the term, renegotiate the interest rate or find some other mutually beneficial resolution.

Importance of Process Agent Understanding What Should Not Be Received 

In prior articles, we have also discussed the importance of choosing a process agent that understands the role and knows what should and should not be received on behalf of any borrowers or issuers who made the appointment. What should the process agent consider when determining whether to receive the summons and complaint and forward it to the borrower or issuer? The short answer is that the process agent should confirm that (i) they are appointed as process agent on behalf of the defendant or defendants named in the summons and complaint; and (ii) that the issues in the case relate to the specific financing transaction that required the process agent be appointed.

While this seems pretty straightforward, in our experience as a process agent, we have received legal process on behalf of international companies on matters that were not related to the financing transaction in which we were appointed. This occurs most often when an international company issues securities in the U.S. and files a registration statement with the SEC. In accordance with the regulations under the Securities Act of 1933, as amended, an agent for service of process is required to be appointed in the registration statement. The role of the agent for service or process agent in these filings is to receive any legal process or notices related to a civil suit or action brought against an issuer where the action arises out of or relates to any offering made in connection with the securities registered.

Since the registration statement is public record, we have found that plaintiff’s counsel in matters unrelated to the securities offering will serve the international company via the process agent appointed in the registration statement. For example, we received a summons and complaint on behalf of a Chinese company in connection with a patent and trademark infringement matter. In this case, while we were appointed as the agent for service in a registration statement on SEC Form F-1, (the initial registration statement of certain securities by foreign issuers) we were only responsible to receive legal process relate to the securities offering. After careful review of the summons and complaint and the documentation in our process agent database, we returned the legal process to the plaintiff’s counsel.

What Are the Consequences if the Process Agent Incorectly Receives Legal Process? 

We are aware of a case where a summons and complaint was delivered to the process agent for a Canadian corporation where the complaint filed by an employee of the Canadian company alleged that one of her co-workers was harassing her[i]. Plaintiff’s counsel identified the process agent from the SEC website in an SEC Form F-X related to a Form 40-F filing (a registration statement used to register Canadian securities in the U.S.). The process agent in this case received and forwarded the summons and complaint to the contact on record with the Canadian company.

Since the process agent should not have received the summons and complaint, the Canadian company took action to file a motion to dismiss on the basis that the plaintiff did not properly serve the complaint because the appointed process agent was not authorized to receive process for civil actions unrelated to the Canadian company’s securities. The court ruled to quash the service of process and provide the plaintiff with an opportunity to properly serve the Canadian company.

The consequence in this instance is that the Canadian company had to incur the cost of time and financial expense to file a motion in a court in the United States. In this case, the process agent should not have received the summons and complaint, and the Canadian company would have been spared the expense of going to court. This highlights the importance of working with a process agent that understands its role at all stages of engagement.

Reference articles:

Consenting to Jurisdiction: Forum Selection Clauses and the “Minimum Contacts” Requirement

Appointing a Process Agent in Registration Statements Filed with the SEC

[i] King v. CAE Inc., No. CV 12-00441-PHX-FJM, 2012 U.S. Dist. LEXIS 98051 (D. Ariz. July 13, 2012).
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This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Process Agent