THE NEW LAW OF 10 JULY 2020 ON PROFESSIONAL PAYMENT GUARANTEES

The new law of 10 July 2020 on professional payment guarantees (“PPG Law”) http://data.legilux.public.lu/eli/etat/leg/loi/2020/07/10/a582/jo , in force on 17 July 2020, introduces a new type of guarantee instrument, which adds to the already existing legal framework (garanties autonomes– garantie à la premiere demande, cautionnement) more flexibility and contractual freedom. A guarantee submitted to the PPG Law is exempt from the recharacterization risk into another guarantee instrument. Even if the use of the PPG Law is rather meant to be professional, all types of corporate entities, with or without legal personality and natural persons can be grantors under the PPG Law.

Definition

Article 2 of the PPG Law provides that a professional payment guarantee (garantie professionnelle de paiement) is the commitment by which the guarantor, undertakes towards a beneficiary to pay, at the request of the beneficiary or of an agreed third party, an amount determined according to the agreed terms, in relation to one or more claims or the risks associated with such claim.

Key features of the PPG Law

– To benefit from the PPG Law the parties must expressly submit the PPG agreement to the PPG Law, and pass such agreement in writing (email, fax, or other durable medium (support durable)) (Art. 3 PPG Law).
– The professional payment guarantee can be granted at the request of a third party or the beneficiary.
– The subject and terms of the professional payment guarantee and in particular the terms of the guarantor’s obligation to pay under the professional payment guarantee are freely agreed between the parties.
– The parties may expressly refer to the guaranteed claims or risks for the determination of the amount, the terms and the duration of the professional payment guarantee.
– The guarantee may be issued in favour of a person acting on behalf of the beneficiaries,  a trustee, to guarantee the claims of third party beneficiaries, present or future, provided that such third party beneficiaries are determined or determinable. Persons acting on behalf of beneficiaries of the professional payment guarantee, or the trustee, have the same rights as the direct beneficiaries, without prejudice to their obligations vis-à-vis third parties beneficiaries.
– Unless otherwise agreed:

• the guarantor may not object to the guaranteed claims or risks;
•  after payment, the guarantor has a personal recourse against the principal (donneur d’ordre) and is subrogated in the rights of the beneficiary in respect of the debts concerned up to the amount of his payment;
• the guarantor remains liable towards the beneficiary to the full extent under the professional payment guarantee even if the debtor is the subject of a reorganization measure, a liquidation procedure or any other national or foreign measure affecting the rights of creditors, including when the receivables concerned are or have been the subject of a rescheduling (rééchelonnement), reduction or conversion measure into capital or any other instrument, all without prejudice to the application of the provisions of the law of 8 January 2013 on over-indebtedness .

The provisions of articles 2011 and following of the Luxembourg Civil Code on personal guarantee (cautionnement) cannot prevent the application of the terms agreed between parties set forth in a professional payment guarantee agreement.
Ongoing guarantee agreements can be converted into a professional payment guarantee by inter alia inserting therein the reference to the PGG Law.

The PPG Law provides legal certainty and contractual freedom, which confirms once again the business attractiveness of the Grand Duchy of Luxembourg.