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28 July 2020
The law of 10 July 2020 on professional payment guarantees was recently published and entered into force on 17 July 2020. The law provides:
The law defines a 'professional payment guarantee' as a commitment whereby a guarantor undertakes to pay a beneficiary, at the request of the latter or an agreed third party, an indicated amount in connection with certain claims or related risks.
The guarantor can be either a legal entity (with or without legal personality) or a natural person.
Although not expressly provided for by the new law, the new professional payment guarantee can cover all claims, regardless of their nature or origin provided that they are identified or identifiable subject to the limits imposed by public policy rules.
Parties can contractually determine the terms of the professional payment guarantee (eg, the amount, duration and conditions for payment under the guarantee).
One noteworthy characteristic of the law is that the professional payment guarantee can be granted in favour of a (security) agent or trustee acting on behalf of (identified or identifiable) third-party beneficiaries, as is already the case for security granted under the Luxembourg Collateral Act of 5 August 2005. This feature makes the new guarantee a useful tool in the context of multi-lender credit transactions whereby a security agent typically holds the security or guarantee for the benefit of all secured parties.
Unless the parties agree otherwise, the guarantor remains liable to the fullest extent under the professional payment guarantee, even if the debtor is subject to a reorganisation, liquidation or other national or foreign measure affecting the rights of creditors.
The new guarantee is available only if the parties expressly provide for its application in their guarantee agreement, which must be in writing (including in electronic form or any other durable medium). This requirement is intended to eliminate the risk of recharacterisation of the guarantee. Parties can make an existing personal guarantee subject to the new legislation by amending their agreement to include an express reference to the law.
The new law on professional payment guarantees, which aims to create greater freedom of contract while ensuring legal certainty in the provision of personal guarantees governed by Luxembourg law, is undoubtedly a welcome addition, especially in times of heightened uncertainty, and demonstrates once again Luxembourg's attractiveness as a forward-looking and business-friendly financial centre.
For further information on this topic please contact Josée Weydert, Greet Wilkenhuysen, Romain Sabatier or Ann Blaton at NautaDutilh Avocats Luxembourg by telephone (+352 26 12 29 1) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The NautaDutilh Avocats Luxembourg Sàrl website can be accessed at www.nautadutilh.com.
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