STRONG LETTERS OF COMFORT

LEGAL NATURE OF THE CONTRACT, CONTENT AND BREACH OF THE CONTRACTUAL OBLIGATION, INSOLVENCY AND EMERGENCY MANAGEMENT PROCEEDINGS

Abstract

The issuer of the strong letter of comfort undertakes to provide assistance to a third person aimed at its orderly performance of secured obligation to the recipient of the letter. Such letters are normally issued as a result of a compromise in situations when the third party and the recipient are unable to reach an agreement on provision of other, more traditional, security instrument (e.g. suretyship or guarantee). Through
issuance of such a letter a contractual relationship qualified as an atypical contract in favor of the third party is established. Third party (the debtor), although not a party to the contractual relationship between the issuer and the recipient of the letter, is regularly affiliated with the issuer of the letter. In such affiliation (e.g. through the group of companies or the undertaking contract) lies the interest of the recipient to undertake such a security for the third party. The paper elaborates on the legal nature of the issuer’s obligation (especially in relation to the suretyship) whereat it touches upon the nature of such a unilateral contract as well. Thereupon the paper elaborates on the content and the measure of the issuer’s obligation to provide assistance to the third person and then it gives a legal analysis of the possibility to exchange such an obligation with the performance of the secured obligation directly to the recipient of the letter. In addition, the effects of the breach of the issuer’s obligation, its impossibility to perform its obligation and finally the insolvency and the emergency management proceedings are elaborated upon. In that regard rules on loan replacing
the share capital are also analyzed.