Category: Education

New Letter of Credit Rules Call for Careful Review

by David F. Scranton

On Oct. 25, 2006, the International Chamber of Commerce (“ICC”) announced adoption of new rules for commercial letters of credit: the Uniform Customs and Practices for Documentary Credits (2007 Revision), International Chamber of Commerce Publication No. 600 (“UCP 600”).1 These new rules will become effective July 1, 2007 and will replace the existing ICC rules for commercial letters of credit, known as Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (“UCP 500”). Issuers need to review the new rule changes, consider alternative rules available to govern letters of credit, and modify their policies and procedures accordingly.

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A bank guarantee is a pledge on the part of a bank to make someone’s debt good in the event that he or she cannot pay it. These types of guarantees are essentially like agreements to stand as a cosigner on a transaction; in the event that the original party cannot follow through, the bank can be called upon to provide the payment. Many banks offer bank guarantees as a service to their customers for the purpose of facilitating large business operations and deals, and this particular banking tool is primarily used by big customers such as corporations and governments.


Anatomy of Documents under the Microscope of UCP 600

By Ravi Mehta, Ph.D.

The UCP tells bankers to determine compliance with the LC on the basis of examination of the documents alone, which the LC calls for presentation. The UCP has codified standard for examination of the documents, which the bankers must observe to determine whether or not the documents appear on their face to constitute a complying presentation.

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Sourcing the Deals

Different companies will have various motives when deciding to pursue an acquisition, divestiture, joint venture, or strategic alliance plan. The decision is usually driven by key business fundamentals such as broader competitive product line, access to strong distribution channels or new markets, sharing of scarce talent, lower unit cost position via the elimination of common costs, economies of scale, better market positioning with a stronger brand recognition, and faster speed of entering a market versus doing a start-up. In the case of divestiture, the motivation to sell may be due to poor financial performance of the company or, if the business is a subsidiary or division, it no longer fits strategically with  the future direction  of the company.

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Doing Due Diligence

Due diligence is used to investigate and evaluate a business opportunity. The term due diligence describes a general duty to exercise care in any transaction. As such, it spans investigation into all relevant aspects of the past, present, and predictable future of the business of a target company. Due diligence sounds impressive but ultimately it translates into basic commonsense success factors such as “thinking things through” and “doing your homework”.

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