What is the difference between accessory guarantees and on demand guarantees?
In case of disagreement between the parties regarding the underlying conditions, payment under an accessory guarantee may be postponed pending amicable agreement, arbitration or final judgement in court. When the beneficiary demands payment in accordance with the terms of a demand guarantee, the bank is obliged to effect payment whether or not the principal is in default under the underlying contract. Any disputes between the principal and the beneficiary must be solved between the parties subsequently without the bank's role. The bank's obligation to pay under the guarantee is based solely on the guarantee itself and is not dependent on the underlying contract.
What is URDG?
The Uniform Rules for Demand Guarantees, developed by the ICC are used by banks and businesses across continents and industry sectors. A demand guarantee is an independent undertaking where guarantors are assured that their commitment is subject to its own terms.
What is required to issue a guarantee?
A bank guarantee request has to be approved by the bank. Normally you get an offer letter for a specific guarantee or you will get an offer letter for a guarantee facility up to a certain limit. As a customer you must provide us with at least the following information: Name and address of debtor/principal, Name and address of beneficiary, Guarantee amount, Expiry date, What the guarantee is related to (e.g. the underlying contract) and Type of guarantee (e.g. performance, payment or advance payment).
What is the price for a guarantee?
The pricing of a guarantee depends on: The amount and length of the guarantee, the type of guarantee, what kind of security the bank receives, the general market situation and the specific situation for your line of business.
How do I make a demand?
A demand is brought against the guarantor when the beneficiary believes the principal has defaulted with the underlying conditions covered by the guarantee. The demand must state: a reference to the guarantee in question, how the principal has defaulted on the underlying agreement covered by the stated guarantee, and if possible documentation: the amount demanded under the guarantee and to which account the money should be credited.
How long time it will take to be paid after a demand has been presented i.e. when will the bank pay?
Payment will depend on if the guarantee is an accessory or demand guarantee. A demand under an accessory guarantee will be paid when one of the following conditions is true: amicable agreement (e.g. the principal accepts the demand), final judgement in court or arbitration award. Payment under a demand guarantee will depend on the wording of the guarantee, describing what must be presented and when payment should be made.
What documentation does Nordea need to cancel a guarantee with no expiry date?
If the guarantee is open ended (i.e. no expiry date), we need either the original guarantee document returned to us or that the beneficiary in writing states that Nordea is released from our obligations.