Best Project Finance Lawyers in Faroe Islands

About Project Finance Law in Faroe Islands

Project finance in the Faroe Islands refers to the legal and financial structuring of large-scale infrastructure, industrial, or public service projects through the creation of a distinct legal entity, separate from project sponsors. Typically, it involves arranging non-recourse or limited recourse financial support, where lenders primarily rely on the future cash flows of the project for repayment. The Faroe Islands, as an autonomous territory within the Kingdom of Denmark, has its own unique legal and regulatory approach for project finance, especially regarding local industries such as fishing, energy, and infrastructure. Both domestic and foreign investors are increasingly looking to the Faroe Islands as a destination for projects, particularly within renewable energy and maritime sectors.

Why You May Need a Lawyer

Navigating project finance transactions in the Faroe Islands can be complex, especially due to their bespoke contractual, financial, and regulatory elements. You may require a lawyer if you are:

• Planning to invest in or sponsor a major infrastructure or energy project
• Negotiating project finance agreements with banks or international lenders
• Structuring public-private partnerships or entering joint ventures
• Securing permits, licenses, or addressing local regulatory compliance issues
• Drafting or reviewing project contracts, including engineering, procurement, and construction (EPC) agreements
• Addressing environmental and land use considerations
• Seeking advice on collateral, guarantees, and risk allocation
• Facing disputes, defaults, or potential restructuring of ongoing projects

Ultimately, a lawyer can help ensure that your project is structured appropriately, documentation is accurate, compliance is met, and your interests are protected throughout the project's lifecycle.

Local Laws Overview

The legal environment for project finance in the Faroe Islands is influenced by both Faroese legislation and, to a lesser extent, Danish law and international norms. Key areas relevant to project finance include:

• Contract Law: Project finance often hinges on a suite of interlinked contracts. Faroese contract law is essentially based on Danish legal tradition, which places a high value on good faith and contract freedom.
• Secured Transactions: Mortgages, pledges, and other forms of security interests are recognized under Faroese law, but registration and enforcement processes may differ from other jurisdictions.
• Permitting and Licensing: Certain sectors, notably energy and fisheries, involve comprehensive permitting procedures. Regulatory bodies oversee compliance with safety, environmental, and economic requirements.
• Corporate Structures: Local and foreign entities can form Special Purpose Vehicles (SPVs) commonly used in project finance structures.
• Public Procurement: Projects involving public assets or government participation must comply with Faroese procurement rules, which align closely with EU principles.
• Banking and Finance Regulation: These govern how local and cross border financing can be provided and what requirements apply to lenders and borrowers.
• Dispute Resolution: Disputes arising from projects can be resolved through local courts or arbitration, depending on the agreements in place and the parties involved.

It is essential to obtain local legal advice, as some aspects of Denmark’s legal frameworks do not apply in the Faroe Islands, and local customs or statutory requirements may impact project structures or timelines.

Frequently Asked Questions

What types of projects typically use project finance in the Faroe Islands?

Project finance is usually used for large infrastructure projects such as energy generation (wind, hydro, marine), transportation, port and harbor developments, fisheries, and sometimes tourism facilities or public-private partnerships.

Do I need a local partner or company to engage in project finance?

Foreign participants do not always need a local partner, but forming a Special Purpose Vehicle under Faroese law is often advisable or required, depending on the sector and regulatory needs.

Are there restrictions for foreign investors in project finance deals?

Generally, the Faroe Islands encourage foreign investment, but specific industries like fisheries can have restrictions on foreign ownership or participation. Legal advice should be sought for sector-specific regulations.

What are the main sources of financing available for projects?

Projects can be financed through local commercial banks, international financial institutions, export credit agencies, equity investors, public funds, or a combination of these. Securing multiple sources is common to mitigate risk.

How long does it take to arrange project finance?

The timeline depends on the project's complexity, sector, and regulatory approvals needed. Initial structuring, due diligence, and financial close can take from several months to over a year.

Do projects need specific government permits or approvals?

Most major projects do require sector-specific permits, especially in energy, fisheries, or construction. Environmental impact assessments and public hearings may also be required.

What legal risks should I be aware of?

Risk factors include changes in regulation, environmental liability, permitting delays, land rights issues, currency fluctuation, and potential community or stakeholder opposition.

Can disputes in project finance be resolved through arbitration?

Yes, parties can agree to arbitration, either in the Faroe Islands or internationally. Many project finance contracts include arbitration clauses for neutral and efficient resolution.

How are security interests enforced in the Faroe Islands?

Security interests such as mortgages and pledges must be properly registered with local authorities for enforceability. The enforcement process follows local procedural laws.

What happens if the project does not generate expected revenues?

If the project underperforms, non-recourse or limited recourse structures mean that lenders may only have recourse to project assets and revenues, not sponsors’ other assets. Debt restructuring or additional equity contributions may be negotiated.

Additional Resources

The following governmental bodies and organizations may be useful for those seeking information or assistance regarding project finance in the Faroe Islands:

• The Faroese Ministry of Trade and Industry - for sector-specific regulations and investment guidelines
• The Financial Supervisory Authority (FSA) of the Faroe Islands - for banking and finance regulation
• The Faroese Tax and Customs Administration - for tax implications of projects
• Environmental Agency of the Faroe Islands - for environmental permits and compliance
• Local law firms specializing in commercial, corporate, and project finance law
• Industry associations related to renewable energy, fisheries, and infrastructure

Next Steps

If you are considering or already involved in project finance in the Faroe Islands, consult with a qualified local lawyer at the earliest stage possible. Gather documentation about your project plans, identify potential financing sources, and begin preliminary discussions with relevant governmental agencies. A lawyer can help you navigate regulatory requirements, structure your project to minimize risk, draft and review contracts, and represent your interests in negotiations or disputes. Proactively addressing legal issues will contribute to project success and help avoid costly mistakes or delays.