Assignment of proceeds

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Assignment of proceeds

Postby Chak - on Mon May 02, 2011 10:48 pm

Dear All,
In this example, the beneficiary has done an assignment of proceeds. The LC value is, say USD 100,000
The assignment was done initially to A1 for USD 25,000
then to A2 for USD 25,000
then to A3 for USD 40,000

Subsequent amendments reduced the LC value to USD 30,000. The bene has accepted all the amendments and has presented the documents for USD 30,000.
In this case, who should receive the above payment. A1 or A2 or A3?

Even in cases of no reductions in LC and where partial shipments are allowed, on what basis is any priority, if any, assigned to various assignees.
Regards,
Chak

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Chak
 
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Assignment

Postby abrar - on Tue May 03, 2011 3:35 am

Firstly, it should be noted that the act of assignment, the payment under it, and the rights and responsibilities of the concerned parties fall outside the scope of the LC, and UCP.

An assignment of LC proceeds ususally follows the process of the assignor (LC beneficiary) issuing a letter of assignment to the assignee. Assignments under English law, are classified into "legal" and "equitable" assignments. The distinction is that a "legal" assignment can only have effect if it relates to an existing debt, and the assignment is full and not partial. Failing this test, the assignment would be treated as "equitable" and most LC assignments would therefore fall into this category, i.e when the debt becomes payable, an equitable interest would pass to the assignee. It should also be noted that an assignee under an "equitable" assignment (unlike the case under a "legal" assignment) requires the assignor to join in, in any pursuit of claims against the debtor (the issuing bank).

Whilst a letter of assignment is given to the assignee by the assignor, the assignee must also ensure to issue its Notice of Assignment to the paying bank, so that the paying recognises the assignment. With multiple assignees, the situation becomes muddy, as unless each assignee is willing to be subordinate, the bank would pay whoever issues the Notice of Assignmet first.

More commonly, where an LC beneficiary wishes to assign part of the proceeds to more than one assignee, the assignor/beneficiary would instruct the bank to irrevocably pay each assignee a part of the proceeds in order of priority. Provided each assignee is aware that other assignees are involved, and its own ranking in terms of priority, the bank would acknowledge the instructions and amounts to each assignee, with a comment that since the assignor has already assigned part of the LC proceeds to other assignees, any prior assignments which the bank has been made aware of, would take precedence. The bank should also state that funds would only be paid, provided that they are freely disposable, that is to imply, there are no creditor attachments, court orders, injunctions, etc, which might prevent the bank from paying. Care should also be taken if the LC allows partshipments, since unless the assignment instruction is made clear (and does not contain a pro-rata payment clause) , in the event of a drawing for less than the assigned amounts, full payment should first be made to the assignee, in order of assignee priority.
In the given case, it is not clear what the terms of the assignments are, or the order of priority, but for the sake of simplicity, if A1, A2 and A3 follow in order of priority, the assumption would be that in the case of LC reduction, (and no corresponding reduction in the assignments), A1 should receive USD25,000, and A2 should receive USD5,000. That would still leave A2 out-of-pocket by USD20,000, and A3 by USD25,000, but that would not be a matter of concern to the paying bank.

My views only.

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Priority of assignment

Postby Chak - on Fri May 06, 2011 10:31 am

First of all, I highly appreciate your time, patience and interest in explaining things in detail.
Now when there are multiple assignments, should the bank ask for the priority of assignment?
In a few earlier instances, we have not asked for any priority. What could be the risk involved for the bank?
In cases of assignments prioritized , should we let the other assignees know their standing in the priority list. This may bring into picture revealing customers/benificiarys confidential details. How should we let the assignees know their standing in the priority list without revealing other important details. Is there any standard format for Assignment of Proceeds?

Thanks

Chak

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Assignment

Postby abrar - on Fri May 06, 2011 9:43 pm

The assignees should be aware of the LC value, but from the bank's point of view, for sake of good order, the bank's acknowledgement of assignment should state the LC value under which the assignment has been made. It should also indicate the priority of assignments (above the assignment being addressed), but not necessarily amounts or identity of assignees.

Formats of the letter vary from bank to bank

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