What this is: In commercial finance, the use of a process agent (a/k/a “Agent for Service of Process” or “Contract Agent”) be appointed on behalf of borrowers, guarantors or other parties to finance agreements.
What this means: This reflects lenders’ heightened focus on certainty of legal service of process and notices that arise from a financial transaction, even when every party to the agreement is located within the United States.
Below, we explore why lenders require that a process agent be appointed in the finance agreements and provide examples of U.S. deals where this requirement regularly appears along with a key point of clarification: the process agent must be appointed separately from the borrower’s statutory registered agent.
A Critical Distinction: Process Agent vs. Registered Agent
One point that arises in some commercial finance transactions is the need to clarify that a process agent appointed under a commercial finance agreement (i.e., loan agreement, guaranty, etc.) is not the same as a statutory registered agent appointed pursuant to statutes under state corporate, LLC and entity laws.
| A registered agent is appointed by statute under state law, generally in formation, qualification and other state filings. | A process agent is appointed by contract for a specific financing transaction. |
Even where a borrower is qualified to do business in a particular state and already maintains a registered agent in that jurisdiction, lenders typically require the appointment of a separate, expressly named process agent in the finance documents.
This contractual appointment is designed to ensure certainty, continuity, and enforceability of legal service of process and notice obligations for the duration of the transaction.
Registered Agents Accept Only Statutory Service and Generally Not Contractual Notices
A statutory registered agent’s responsibilities are defined and limited by state law. In general, a registered agent is obligated only to accept statutory service of process, i.e., a summons and complaint initiating a legal proceeding.
By contrast, commercial finance transactions impose a separate and far broader set of contractual notice and service obligations only for specific transaction in which the process agent is appointed, which commonly include:
- Notices of default
- Acceleration demands
- Margin or collateral calls
- Indemnification claims
- Intercreditor notices
- Enforcement instructions and related communications
These contractual notices generally fall outside the statutory scope of a registered agent’s duties.
Governing Law Provision Under Commercial Finance Agreements and Designation of Process Agent
Under a typical commercial financing loan, indenture, aviation lease and other finance agreements that require the designation of a process agent in the governing law provision, the process agent:
- Will provide an acceptance to be engaged to act as agent for service of process to receive legal process and legal notices related to the specific transaction they are appointed.
- Will provide lender-required delivery confirmations and evidence of service as per the instructions provided.
Selecting a process agent that understands their role when being named as the process agent when the deal is being negotiated and, as importantly, at a future date upon receipt of any legal process for any financial transaction is prudent and beneficial to all parties.
Process Agent Appointments are Contractual and Do Not Change with a Registered Agent Filing
For example, when a Delaware LLC files a Certificate of Change with the Delaware Secretary of State to update the registered agent listed in its Certificate of Formation, that statutory filing has no effect on any process agent appointed under the terms of a loan or finance agreement in connection with a finance transaction.
In commercial financings transactions, a process agent is expressly designated in the loan agreement and related operative documents, often on an irrevocable basis, and is appointed pursuant to a separate contractual obligation for the duration of the financing. As a result, the process agent remains the same for the full term of the deal unless the finance documents expressly permit a change and the lender provides its consent.
This distinction is intentional. Lenders require a specifically named process agent under contract to ensure continuity and certainty of service of process and legal notices (particularly in enforcement or default scenarios) regardless of any subsequent changes a borrower may make to its statutory registered agent for corporate or administrative reasons.
Why Lenders Require a Separate Process Agent Even in U.S. Only Deals
Lenders generally will require the borrower to appoint a named process agent distinct from any registered agent, regardless of whether the borrower is qualified or incorporated in the jurisdiction where the process agent must be located to ensure that the process agent named for the specific transaction remains in place even if the entity changes it’s statutory registered agent in the state of formation.
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Conclusion
There are many transactions involving only U.S. parties, where the appointment of a process agent in specific finance agreements in addition to a statutory registered agent in a single state is prudent to support contractual and state statutory compliance in the where entities are formed and qualifies, and to distinguish the separate role of the process agent to only receive legal process for the specific finance agreement(s) for transactions in which they are appointed.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.