The legal framework for accessory guarantees (cautionnements) and autonomous guarantees (garanties autonomes) was a source of legal uncertainty given that, based on how the guarantee was written, an accessory guarantee could be requalified as an autonomous guarantee and more frequently, an autonomous guarantee could be re-qualified as an accessory guarantee. On 1 July 2020, the Luxembourg legislator adopted a new law on professional payment guarantees (the “Law”) in order to provide the parties with greater contractual flexibility and solve re-qualification issues.
The Law defines a professional payment guarantee as an undertaking by the guarantor (a legal entity), to pay the beneficiary, at the request of the beneficiary or of an agreed third party (i.e. a security agent, trustee or fiduciary agent), an amount determined in accordance with agreed terms in relation to one or more claims or associated risks.
The Law offers a wide range of freedom to the parties who will be able to combine the elements of the accessory guarantees (i.e. reference to the guaranteed obligation, stipulation that the
guarantor’s obligation may not exceed that of the debtor and enforceability of the exceptions that the debtor may raise against the creditor) with those of the autonomous guarantees (i.e. payment without default by the debtor and payment even if the debtor is in collective proceedings).
In the context of the current COVID-19 health crisis, the parties to a security agreement (accessory guarantee or autonomous guarantee) may certainly benefit from the advantages offered by this new law. For more information and to stay up to date on this topic, please feel free to reach out to the contacts listed on this article or your usual Luther S.A. contact.