Assignment Of Proceeds

 

assignment of proceeds letter of credit

We hereby authorize and direct you to pay the proceeds of each draft drawn by us, payable to your order, under and in compliance with the above described Letter of Credit, if . The beneficiary may do so before presentation as a present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit. (c) An issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it . Aug 17,  · An assignment of proceeds is a financial document that is used to redirect all or a portion of a currently active letter of credit from the current beneficiary to a third party beneficiary. This type of activity can only take place if the current beneficiary is willing to agree to the arrangement.


Letters of Credit - Assignment of Proceeds | Point to Point


We would like to ensure that you are still receiving content that you find useful — please confirm that you would like to continue to receive ILO newsletters. Banking Hong Kong. UCP provides that, to the extent that it is permissible under the applicable law, a beneficiary is entitled to assign the letter of credit proceeds even if the letter of credit is not transferable.

However, UCP remains silent on the differences between a transfer and an assignment. An assignment of letter of credit proceeds is an assignment or transfer of future debt payable under a letter of credit from the beneficiary to another person ie, the assignee.

It enables the assignee, instead of the beneficiary, to receive payment under the letter of credit. An assignment of proceeds does not convey a right to draw or to perform under the letter of credit; the drawing must be made by the named beneficiary, although the right to receive the proceeds is vested in the assignee.

In contrast, when a letter of credit is transferred to the transferee, assignment of proceeds letter of credit, the right to draw or to perform under the letter of credit is also transferred. The transfer of a letter of credit allows a second beneficiary ie, the transferee to present documents pursuant to the letter of credit and so be paid. Thus, the role of an assignee under an assignment is relatively passive because, as far as letter of credit payment is concerned, assignment of proceeds letter of credit, an assignee must wait until the letter of credit proceeds emerge, whereas a transferee can take an active role to draw on the letter of credit.

As UCP neatly sets out the way in which a letter of credit may be transferred, this update focuses on the legal aspects of the assignment of letter of credit proceeds. Assignment by purchase This takes the form of a true sale and purchase transaction between the letter of credit beneficiary and the assignee. The assignment of proceeds letter of credit is effectively purchasing the debt ie, the receivables under the letter of credit from the beneficiary.

As a result, the letter of credit proceeds, once assigned, are the property of the assignee. Although the assignment of the letter of credit proceeds is by way of purchase, it can still be structured so that the purchase is with recourse to the letter of credit beneficiary on the occurrence of certain events eg, the insolvency of the issuing bank.

Assignment by s ecurity This takes the form of collateral for a loan. The assignee advances funds to the letter of credit beneficiary and takes the letter of credit proceeds as security backing such advances.

The proceeds remain the property of the beneficiary, but are subject to the security interest of the assignee. No matter how the assignment is effected, it can be classified as either a legal assignment or an equitable assignment.

An assignee under a legal assignment will be entitled to sue the letter of credit obligor in its own name. However, under an equitable assignment, the assignee will have to join with the letter of credit beneficiary to take legal action against the obligor as co-plaintiff or, if the beneficiary refuses to sue the obligor jointly with the assignee, to sue the beneficiary as co-defendant together with the obligor when the latter defaults in payment.

This explains why banks generally prefer to obtain legal rather than equitable assignments. Is registration required for assignment? If an assignment is obtained by way of purchase, no registration of the assignment is required under Hong Kong law, as the proceeds are no longer the property of the letter of credit beneficiary.

However, if the assignment is obtained by way of security, the registration requirement will apply. Failure to register a registrable assignment will render the assignment void against the liquidator and creditors of the letter of credit beneficiary.

Must notice of assignment be served on the issuing bank? If a letter of credit is silent on whether the proceeds may be assigned by assignment of proceeds letter of credit beneficiary to a third party, the presumption is that assignment of the proceeds is permissible. Under Hong Kong law, if the assignment of letter of credit proceeds is not prohibited, the assignee is not obliged to assignment of proceeds letter of credit notice of assignment to the obligor in order to render the assignment legally valid and enforceable.

However, failure to serve a notice of assignment on the obligor may lead to the following consequences:. Must acknowledgment of the notice of assignment be obtained from the obligor? Under Hong Kong law, unless the letter of credit provides otherwise, no consent from the obligor is required for assignment of the proceeds; therefore, no acknowledgment of the obligor signifying its consent to assignment is strictly necessary for the fulfilment of the assignment.

However, acknowledgment of the notice of assignment gives the assignee additional benefits because it represents proof that notice was duly served on the obligor, assignment of proceeds letter of credit. In daily banking practice, if a notice of assignment is successfully sent by way of an authenticated Society for Worldwide Interbank Assignment of proceeds letter of credit Telecommunication message, an 'acknowledge' code signifying assignment of proceeds letter of credit the notice has been duly served on the obligor will automatically be generated, in which case a separate acknowledgment from the obligor is not needed.

An assignee of letter of credit proceeds takes a passive role in receiving the monies under the letter of credit, whereas a second assignment of proceeds letter of credit under the letter of credit takes an active role in drawing it, assignment of proceeds letter of credit. Assignment of letter of credit proceeds can be effected by way of purchase or by way of security; in the latter case, registration is required under Hong Kong law to ensure the priority of the assignment.

The materials contained on this website are for general information purposes only and are subject to the disclaimer. ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.

View recent newsletter. Confirm Manage account. Forward Share Print. Transfer versus Assignment An assignment of letter of credit proceeds is an assignment or transfer of future debt payable under a letter of credit from the beneficiary to another person ie, the assignee.

Effecting Assignment As UCP neatly sets out the way in which a letter of credit may be transferred, this update focuses on the legal aspects of the assignment of letter of credit proceeds.

Letter of credit proceeds are commonly assigned by way of purchase and by way of security. Types of Assignment No matter how the assignment is effected, it can be classified as either a legal assignment or an equitable assignment, assignment of proceeds letter of credit. A legal assignment must be: in writing; absolute - that is, it must assign all of the interests under the letter of credit; and confirmed by a notice of assignment served on the letter of credit obligor eg, the issuing bank.

An assignment which does not satisfy all three criteria is an equitable assignment. Common Questions Is registration required for assignment? However, failure to serve a notice of assignment on the obligor may lead to the following consequences: The assignee has no right to sue the obligor in its own name because the assignment is an equitable assignment; In the absence of a notice of assignment, the obligor obtains good discharge by effecting payment to the beneficiary, even if the beneficiary subsequently fails to pass the proceeds to the assignee; If the beneficiary fraudulently assigns the proceeds to more than one assignee, assignment of proceeds letter of credit, the assignee that first serves a notice of assignment on the obligor will have priority; and The cut-off of set-off rights between the obligor and beneficiary is generally prevented by the letter of credit autonomy principle.

However, in an open account sale and purchase transaction, a notice of assignment will cut off the debtor's set-off rights against the seller.

Thus, from the time the notice of assignment is duly served on the debtor, the debtor will not be entitled to offset the sales proceeds against any debt owed by the seller to the debtor. This is critical in accounts assignment of proceeds letter of credit financing transactions.

Comment An assignee of letter of credit proceeds takes a passive role in receiving the monies under the letter of credit, whereas a second beneficiary under the letter of credit takes an active role in drawing it. Author Fung King Tak. Register now for your free newsletter. Online Media Partners. You need to be logged in to make a comment. Log in here. Many thanks. Your comment has been sent.

Your details.

 

 

assignment of proceeds letter of credit

 

1. Beneficiary receives a workable Documentary Credit. They contact the negotiating bank and request that the bank send an irrevocable instruction in letter form to the supplier. This letter will tell the supplier that the bank has received notification from the beneficiary to make the relevant payment to the supplier out of the credit proceeds. assignment of proceeds to: zb, n.a. dba california bank & trust under and in compliance with the above described letter of credit (“credit”), if and when payment of such draft is made by you, as follows this instrument, and your acceptance thereof, is not a transfer or . The beneficiary may do so before presentation as a present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit. (c) An issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it .