Article Post on 28 April 2020

New Bill on Professional Payment Guarantees

_On 22 April 2020, the Luxembourg Government approved a new bill relating to professional payment guarantees which has now been submitted to the Parliament.

The main purpose of the bill is to introduce a special regime for personal guarantees granted within a professional framework, broadly inspired by the law of 5 August 2005 on financial collateral arrangements, as amended (the “Financial Collateral Law”). 

The main advantage of the bill is to offer a new tailor-made instrument to professional actors subject to a broad contractual freedom of the parties, while also ensuring at the same time legal certainty of the guarantee. This is in addition to the two traditional personal guarantees currently used in practice, namely the suretyship (cautionnement) and the autonomous guarantee (garantie autonome).

The main features of the professional payment guarantee can be summarised as follows:

1. Legal definition

A professional payment guarantee is a commitment from a guarantor towards a beneficiary to pay, at the request of the beneficiary or of an agreed third party, a sum determined according to the agreed terms, in relation to one or several claims or risks associated to them.

2. Conditions to benefit from the guarantee

  • An explicit reference to the law on professional payment guarantees shall be included in the guarantee agreement.
  • The guarantee shall be evidenced in writing either in electronic form or under any other durable form.
  • The guarantee only applies where the guarantor is a legal person.
  • The guarantee can be granted at the request of a third party or the beneficiary of the guarantee.

3. Purpose and modalities of the guarantee

  • The purpose and the modalities of the guarantee, in particular the modalities of the payment obligation of the guarantor can be freely determined by the parties.
  • The parties can expressly refer to the claims or risks guaranteed for the determination of the amount, of the terms and the duration of the guarantee. 
  • The parties can freely determine the events giving right to call the guarantee, it being understood that the guarantee can be called/enforced even in the absence of defaults in the performance of the guaranteed claims or occurrence of the guaranteed risks.
  • The guarantee can cover present, future or even contingent claims and the risks associated to them, whether determinable or not.
  • Similar to collaterals covered by the Financial Collateral Law, the guarantee may be provided in favour of (i) a person acting for the account of the beneficiaries of the guarantee, (ii) a fiduciary or (iii) a trustee, to secure the claims of third-party beneficiaries, present or future, provided such third-party beneficiaries are determined or determinable. Without prejudice to their duties towards the third-party beneficiaries of the financial collateral arrangements, said persons enjoy the same rights as those granted to direct beneficiaries of the guarantee.

4. Special protections 

Unless otherwise agreed between the parties to the guarantee:

  • the guarantor cannot raise any defences related to the concerned claims or risks;
  • after payment, the guarantor has a personal recourse against the debtor and is subrogated to the beneficiary’s rights up to the paid amount;
  • the guarantor remains liable towards the beneficiary for all its obligations under the guarantee, notwithstanding any reorganisation measures, winding-up proceedings or any other similar national or foreign proceedings affecting creditors' rights, against the debtor of the concerned claims, including where such claims are subject to rescheduling, reduction or to conversion in capital (or in any other instrument) measures.

The bill is subject to parliamentary procedures, and review and comments from the relevant parliamentary commissions and of other competent bodies. Therefore, it might be subject to amendments before its final approval, and we will provide updates on any significant developments regarding the bill as-and-when they occur.

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