University of Khartoum

Effect of Insolvency of the Issuing Bank on the Letter of Credit

Effect of Insolvency of the Issuing Bank on the Letter of Credit

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Title: Effect of Insolvency of the Issuing Bank on the Letter of Credit
Author: Ali, Asmaa Hamad Abdullatif
Abstract: This research aims at exploring the legal effects of the insolvency of the issuing bank on the parties to the letter of credit. It also aims to find solutions which could be applicable in the Sudan in the light of American and English laws and cases. The research uses the descriptive analysis approach to identify the problems and study it in clear and precise manner. The research concludes with results which include that: The applicant can claim to restore from the liquidator of the insolvent issuing bank funds or collateral allocated for the purpose of payment of the amount of the letter of credit on the failure of the purpose for which they were allocated. Moreover,the claim of the beneficiary has a priority where the applicant allocated funds with the issuing bank to meet obligations under the letter of credit. The confirming bank’s obligation to honour the credit upon complying presentation is still valid in favour of the beneficiary, even if it has no recourse against the issuing bank to reimburse the amount paid because the due date for the payment of the draft by the confirming bank followed the date of dissolution of issuing bank. The final conclusion is that the nominated bank can claim recourse to the beneficiary when its draft is dishonoured for the insolvency of the issuing bank according to the general principles of negotiable instruments. In the light of that the Sudanese banks are recommended to amend their conditions of reimbursement with the confirming bank in respect of authorization to debit; since itshall be given after the examination of the documents by the issuing bank.
URI: http://khartoumspace.uofk.edu/123456789/23578


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