Vietnam: When shall guarantee obligations be terminated?

According to Circular No. 07/2015/TT-NHNN of the State Bank of Vietnam, bank guarantee refers to a type of credit whereby the guarantor undertakes to act on behalf of the obligor to fulfill their financial obligations to the obligee in the event the obligor fails to fulfill or insufficiently fulfill their agreed-upon obligations to the obligee; the obligor must take on their debt obligations and repay the guarantor.

Guarantee obligations shall be terminated under the following circumstances:

- The obligor’s obligations are discharged.

- The guarantee obligations have been fulfilled in accordance with the guarantee commitment.

- The guarantee is canceled or replaced by other guarantee measures.

- The guarantee commitment has ended its validity.

- The obligee has been exempted from liability to fulfill guarantee obligations to the guarantor.

- Parties agree to do this.

- In accordance with regulations laid down in Clause 1 and 2 of Article 22.

- Guarantee obligations shall be terminated under other circumstances in accordance with legal regulations.

Besides, Circular No. 07/2015/TT-NHNN also stipulates that guarantee commitment refers to the written document issued by the guarantor or the counter-guarantee issuing party or the guarantee-confirmation issuing party which takes one of the following forms:

- Letter of guarantee refers to the written commitment between the guarantor and the obligee to the guarantor's fulfilling the financial obligation on behalf of the obligor in the event the obligor fails to fulfill or insufficiently fulfill agreed-upon obligations to the obligee.

Under the counter guarantee or the guarantee confirmation, the letter of guarantee shall include the written commitment of the counter-guarantee issuing party to the guarantee, or of the guarantee-confirmation issuing party to the obligee;

- Guarantee contract refers to the written commitment between the guarantor and the obligee and other related parties (if applicable) to the guarantee fulfilling the financial obligation on behalf of the obligor in the event the obligor fails to fulfill or insufficiently fulfill agreed-upon obligations to the obligee.

Under the counter guarantee or guarantee confirmation, the guarantee contract shall be composed of the written committee between the counter-guarantee issuing party and other related parties (if applicable), or between the guarantee-confirmation issuing party and the obligee as well as other related parties (if applicable).

View more details at Circular No. 07/2015/TT-NHNN of the State Bank of Vietnam, effective from August 09, 2015.

Le Hai

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