Project Owners Reliability Assessment Rules

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CHAPTER I - GENERAL PROVISIONS

1.    UAB “E Finance” (hereinafter – the Company) rules for the assessment of the reliability of the Project Owners (hereinafter – the Rules) shall establish the provisions for the evaluation of the credibility of the Project Owners, including the criteria of reputation and creditworthiness of the Project Owners.
2.    The Rules are drawn up in accordance with the Law on Crowdfunding of the Republic of Lithuania (hereinafter – the Law) and the accompanying applicable legal acts.
3.    The Company hereby confirms, implements and supports adequate and efficient measures, processes and methods that ensure consistent compliance with the present Rules. The Company shall take the necessary measures to prevent the use of the Company’s platform for criminal purposes.
4.    The terms used in these Rules shall be understood as they are defined in the Law.


CHAPTER II - EVALUATION OF THE PROJECTS OWNERS’ REPUTATION

5.    The Company shall collect and evaluate information on the Project Owner and the Project Owner’s manager and its participants to whom directly or indirectly owned voting rights or the authorized capital is equal to 20 percent or exceeds it or who can do a direct and (or) indirect decisive impact to the project’s owner.
6.    The information provided by the Project Owner can be provided in standardized form.
7.    The reputation shall be deemed good in the absence of evidence supporting the opposite information and if there are no reasonable grounds to doubt the person’s reputation.
8.    The following circumstances of the Project Owner, Project Owner’s managers and participants, holding 20 percent and more of the authorized capital, shall be evaluated during the assessment of the reputation:
8.1.    convictions or initiated pre-trial investigations, with particular attention to convictions for:
8.1.1.    criminal activity related to securities markets or securities or payment instruments, activities related to the money laundering, market manipulation, trade insecurities using non-public information in prejudice to law;
8.1.2.    breach of law or financial crimes related to dishonesty and/or fraud;
8.1.3.    violations of fiscal nature;
8.1.4.    other legal violations, where infringement concerns the activities of legal entities, bankruptcy, insolvency or legal acts regulating consumer safety;
8.2.    are there any information confirming that the person under assessment fails or failed to discharge his/her credit obligations;
8.3.    are/have there been any civil claims, administrative or criminal cases, investments or assumed risks and borrowing of funds able to exert material influence on financial credibility of the person.
9.    Before publishing a project in a crowdfunding platform, the Company must have a sufficient reason to believe that in the paragraph 5  of the Rules listed people meet the platform operator’s approved Projects Owners’ reputation assessment criteria and that these persons do not meet the condition set in the Law’s article 8 paragraph 1 subparagraph, including clearance of these persons from commitment of a crime or criminal offence related to money laundering or terrorist financing, serious, grave crime or criminal offence against property, property rights and property interests, economy and business order, financial system or equivalent crimes under criminal laws of other countries, where the conviction has not yet expired, or where less than 3 years have passed since the time of the final conviction for the above-mentioned criminal acts.
10.    For the evaluation of the projects owners’ reputation the Company will use:
10.1.    the Project Owners’ managers and participants submitted documents and written explanations;
10.2.     reasonable and sufficient information about the project owners, managers and participants of the project owners received from other sources, i.e. publicly accessible information.
11.    When assessing the reputation of the Project Owners, the Company shall not be obliged to re-verify the information provided by the Project Owners, unless the Company has reasons to doubt the accuracy of the provided answers.


CHAPTER III - EVALUATION OF THE PROJECTS OWNERS’ CREDITWORTHINESS

12.    The Company will assess projects of the Project Owner, who has more than 12 months of history as a legal person only.  Before publishing a project in a crowdfunding platform, the Company will evaluate the Project Owner’s creditworthiness. For this purpose, the crowdfunding platform’s operator will:
12.1.    collect information about the Project Owners’ creditworthiness including                information about its undertakings;
12.2.    evaluate whether the Project Owner can realistically within the fixed time limit fulfil financial obligations to the funders i.e. make sure that the Project Owner’s expected to be earned from the project revenue will be sufficient to pay interests and to return the credit or to fulfil other obligations assumed by the funding transaction;
12.3.    make sure that a bankruptcy proceeding is not instituted against the Project Owner.
13.    In any case the Company will require the mortgage from the Project owner, who has real estate project, which is not less than 50 % of the required Funding sum. If after evaluating the Project Owner's creditworthiness in accordance with the paragraph 12 of the Rules, the Company considers that the risk of the Project Owner is high, the Project Owner is advised to provide mortgage worth more than 70 % of required Funding sum.
14.    In order to assess the Project Owner's creditworthiness in accordance with the paragraph 12 of the Rules, the Company shall directly or with assistance of the third persons (including credit bureaus) collect, manage and rely on the information received from external databases (State Enterprise Center of Registers, data of the Loan Risk Database managed by the Bank of Lithuania, etc.).
15.    In order to assess the creditworthiness of the Project Owner the Company also evaluates the information and confirmations provided by the Project Owner while:
15.1.    filling in the standard form prepared by the Company (registration form);
15.2.    completing a Project Owner's application for announcing the project on the platform;
15.3.    answering other Company inquiries, if any.
16.    The Company will ask the Project Owner to complete the standard questionnaire (registration form) and submit the following data and information:
16.1.    the Project Owner's main settlement bank account statement for at least 12 months;
16.2.    The latest approved financial statements of the Project Owner.;
16.3.    contact details (name, surname, residence address, e-mail, telephone (if any), mobile phone and position) of the head of the Project Owner;
16.4.    contact details (name, surname, residence address, e-mail, telephone (if any), mobile phone and position) and the personal ID number and/or registration number of each member of the Project Owner, whose voting rights or share of the authorized capital directly or indirectly is equal to or exceeds 20 percent, or which can exert a direct and/or indirect decisive influence on the Project Owner (providing contact details, personal ID number and specifying the percentage of shares held).
17.    Seeking to assess information on the financial position of the Project Owner and the ability of the Project Owner to execute its financial obligations, according to the data collected, the Company shall assess the following:
17.1.    the financial situation (revenue, the source of income, their variety, stability, profitability and possible future changes, etc.) of the Project Owner;
17.2.    history and information on the inadequate performance of the outstanding and previous financial obligations of the Project Owner;
17.3.    any outstanding or planned obligations of the Project Owner, if the Company is aware or must be aware of them;
17.4.    influence of the circumstances indicated by the Project Owner or known to the Company on the Project Owner’s economic and financial situation and the Project Owner’s abilities to duly perform the financial obligations throughout the entire period of validity of the agreement.
18.    Data about the Project Owner must be verified by using external databases in the absence of information in external databases – base in other evidence.
19.    The Company shall decline to publish a project on a crowdfunding platform, if:
19.1.    the Project Owner does not meet the evaluation criteria for the Project Owners’ reputation and creditworthiness;
19.2.    the Company lacks information, or it does not have sufficient grounds to carry out the evaluation described in the Rules;
19.3.    Information available to the Company causes a basis to believe that publishing the project on the platform would cause a threat to the funder’s interests.


CHAPTER IV - THE PROCESS OF EVALUATION OF PROJECT OWNERS RELIABILITY, FUNCTIONS AND ROLES OF COMPANYS EMPLOYEES


20.    In order to announce the Project through the Platform, the Project Owner shall complete a registration form on the Project provided on the Platform and submit the documents indicated in the article 16 of Rules.
21.     After the Company receives application to announce a project on the crowdfunding platform, the analyst – risk evaluation specialist (hereinafter – Analyst) checks if Project Owner submitted all required documentation and information. If any of it is lacking, Analyst contacts Project Owner and requests to provide additional information or documents.
22.     After Project Owner provides all needed documentation and information, Analyst starts Project Owners evaluation process.
23.     Analyst collects information about Project Owners creditability in databases, such as provided by UAB “Creditinfo Lietuva” (www.creditinfo.lt), UAB “Creditreform Lietuva” (www.creditreform.lt), www.creditsafe.com, www.scorify.com and others.
24.      If needed, Analyst, can request information regarding Project Owner from third parties, governmental institutions, and other sources of information.
25.     When all information is collected, Analyst evaluates Project Owners creditability according to the Rules and makes preliminary decision what score and class have to be assigned to the Project Owner.
26.     After taking preliminary decision regarding the score and class to be assigned to the Project Owner, Analyst refers to the Deputy CEO and presents the summary of the information about evaluated Project Owner and the proposition to assign the Project Owner certain creditability class.
27.     After evaluating the information provided by Analyst and the proposition for assigning certain creditability class for the Project Owner, the Deputy CEO makes final decision for assigning certain creditability class for evaluated Project Owner.
28.     If Project Owner is assigned for Class I or Class II, his Project is approved and Analyst contacts the Project Owner to inform that cooperation with him can be started.
29.     If Project Owner is assigned for Class III, his Project is rejected. In case if Project Owner can provide mortgage worth more than 70 % of required Funding sum, Analyst refers to General Manager of the Company presenting the summary of information collected about Project Owner and class assigned. General Manager on his own discretion can decide to approve the Project of Project Owner.


CHAPTER V - METHODS OF QUANTITATIVE ANALYSIS OF PROJECT OWNERS CREDITABILITY


30.      For quantitative analysis of the Project Owners – companies that are performing activities for more than 12 months, in calculating their rating from the perspective of their insolvency risk, the Altman -Z Score model will be used:

Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E, where:
A = working capital / total assets (total assets)
B = retained earnings / total assets (total assets)
C = earnings before interest and tax / total assets (total assets)
D = market value of equity / total liabilities (total liabilities)
E = sales (total assets) / total assets

31.     Interpreting scoring. Assignment to risk categories for Project Owners will be achieved by   applying the following benchmarks to the resulting score as follows:

Risk Category Maximum Score Accepted Result Score (Z)

Class I> 2.99
Class II [2,99-1,8]
Class III <1>
Where:

Class I - the entity is the solvate;
Class II - the entity will encounter financial difficulties that it can only overcome with adequate management;
Class III – the entity has a high probability of getting insolvent.


CHAPTER VI - FINAL PROVISIONS


32.      Rules come in force after their approval and are applied from the moment when Company is entered to the Public List of Crowdfunding Platform Operators.
33.     Rules may only be amended and appended by decision of the General Manager of the Company. The amendments and supplements to the Rules shall come into force from the date of their approval, unless otherwise stated in the amendments and supplements themselves.
34.     Rules are reviewed annually and must be amended according to the changes of legislation.
35.     The Company must keep the information, data and documents gathered (evaluated) during the creditworthiness assessment for 10 years from the date of fulfillment of obligations under the financing transaction, if other legal acts regulating the legal protection of personal data and storage of documents do not set a longer term for the storage of documents.


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