Article

Full Text at 2006 Annual Survey 493

Summarized by Jorge RIVA*

Topics: Bankruptcy, Issuing Bank; Insolvency

Note: Following instructions from Productos e Insumos de Fitness S.A. (Applicant), Banco Mayo CL, an Argentinian bank, (Issuing Bank) issued a documentary credit that was confirmed by Südwestdeutsche Genossenschafts-Zentralbank AG (Confirming Bank). The LC was payable 60 days after B/L date. In addition, Issuing Bank agreed to loan funds to Applicant for an additional 300 days and, at Issuing Bank's request, Confirming Bank agreed to an additional 300 days, as well. Issuing Bank subsequently became insolvent. Pursuant to special rules for banks in crisis in Argentina, some assets are excluded and transferred to a trust (in Argentina, "fideicomiso", which is similar to a trust) in order to cover some special debts like deposits (Art. 35 bis. Rule from LEF from Argentina).

Following application of these procedures, the Applicant's obligation to Issuing Bank (resulting from the loan that financed the obligation of Applicant to Issuing Bank) was transferred to the trustee, Banco Comafi S.A. (In Argentina, trustee is "fiduciario"). Applicant re-paid its obligation to the "fiduciario" (trustee). Subsequently, Confirming Bank claimed against Applicant in order to be paid the LC.

The judicial decision of the National Commercial Judge and the Appeal Court was the same: the applicant of a documentary credit must reimburse the confirming bank for the amount that Confirmer paid to the seller of imported goods (beneficiary of the LC). The courts looked to UCP400 Article 20 which provides that: "The Applicant shall be bound by and liable to indemnify the banks against all obligations and responsibilities imposed by foreign laws and usages" in the case of bankruptcy of the Issuing Bank when the Issuer did not pay the Confirmer.

The appellate court decided that it did not matter that Applicant had already paid the trustee because it could have deposited the funds to the order of the judge. The judge would then decide who had the right to be paid (the trustee or the Confirming Bank).

Comments by Jorge RIVA:

1. In several cases in Argentina, the principle has been established that in case of bankruptcy of the issuing bank the confirming bank has the right of being reimbursed directly by the applicant.

For instance, in Banco Federal Argentino SA (en liquidaci򬧠s/ quiebra s/ inc. de entrega de fondos depositados en la quiebra por Kalciyan SA deducido por BANCA COMMERCIALE ITALIANA S.P.A. (National Commercial Judge nº 23, Sec. 46), it was decided that funds paid by the applicant and deposited to the order of the judge to decide who had the right to them should be surrendered to the confirming bank.

In BANCO MAYO COOP. LTDO. s/ liquidaci򬟪udicial s/ incidente por KIMPO SA y PLAYMEN SA (Juzgado Comercial nº 5 Sec.nº 9), it was decided that the beneficiary was entitled to be paid directly by the applicant. The same principles applied to the confirming bank.

The unusual result of this case is that although the applicant had already paid the trustee, it will now have to pay twice.

For applicants in Argentina, this case demonstrates that it is prudent to pay by making a deposit to the order of the Judge in the bankruptcy and allow the judge to determine who has the right of being paid.

* Jorge Riva is a lawyer based in Argentina specializing in legal consulting in banking and international trade law (Asesor쟠Técnica y Legal en Mercado Cambiario y Comercio Internacional). His e-mail: jorgeriva@arnet.com.ar

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.