Julie Preston (asker) Jul 15, 2008:

Sorry - my mistake - meant to right "intra-group letterS of COMFORT"

Paul O'Brien Jul 15, 2008:

i meant to say: why NOT a literal translation and have done with it? BUT, "intra-group letters of credit"? ah ha! looks like my original suggestion wasn't that barmy after all. (in fact i meant to plonk "intra-group" in front, but it slipped my mind). :-)

Julie Preston (asker) Jul 15, 2008:

Found this from Credit Suisse Letter of comfort

The letter of comfort, as a rule, is no more than a morally binding statement. Typically, the parent company uses it to raise, or even guarantee, the creditworthiness of one of its subsidiaries. This could mean, for instance, a non-binding statement of intent with no legal force, called a "soft" letter of comfort, intended to induce a "warm feeling". There are, however, also "hard" letters of comfort that are legally binding with content that is enforceable. Whether or not a letter of comfort is binding depends less on its wording and more on whether the two parties intended to enter into a legally binding agreement, or whether the recipient of the letter should assume, in good faith, that the parent company intended to express liability for its subsidiary.
https://www.nab.ch/cgi-bin/app/glossar_cs.pl?Sprache=EN&ID=9...

As far as I can see, court decisions confirming this are very rare but have been taken. See this article on a decision of an Australian Court, where these letters are called "intra-group letters of credit"

http://www.claytonutz.com/Areas_Of_Law/controller.asp?aolstr...

I'll have to check with the client, but if the specific type of arrangement is between the parent company and a subsidiary, it could be just an intra-company guarantee

Paul O'Brien Jul 14, 2008:

so, what are we going for then? why a literal translation and have done with it?

James (Jim) Davis Jul 14, 2008:

In Italian and other European countries a "lettera di patronage" is an informal non binding guarantee (*similar* to a letter of comfort. In English "letter of patronage" does not exist as a financial term (Googles a total of 16)

Paul O'Brien Jul 14, 2008:

how does a "letter of comfort" differ from a "letter of patronage"'

James (Jim) Davis Jul 14, 2008:

The 'letter of comfort' in no way guarantees the loans approval for the subsidiary company. It merely gives reassurance to the lending institution that the parent company is aware and approves of the situation.

James (Jim) Davis Jul 14, 2008:

Investopedia on letter of comfort:
A letter issued to a lending institution by a parent company acknowledging the approval of a subsidiary company's attempt for financing.

Paul O'Brien Jul 14, 2008:

sounds good.

Julie Preston (asker) Jul 14, 2008:

Exactly! Don't think there is an exact equivalent so I've suggested "binding comfort letter".

Paul O'Brien Jul 14, 2008:

it seems to me that the answer is there in "letter of patronage".

Julie Preston (asker) Jul 14, 2008:

I completely agree with you Jim - it's an old concept rather than a new one. Just to confirm, here's another bit of my research:

Questo tipo di garanzia non può essere applicata facilmente nella pratica corrente, dato che a questa è preferita la fideiussione, di cui a tutti gli effetti il mandato di credito rappresenta soltanto una sostituzione, utilizzabile al più, ed in modo più corretto sotto forma di lettera di patronage.
http://www.laconsulenza.it/view_sezione.asp?idsezione=10&idv...

I've given the kudoz link to the client - I'll update you later.

Julie Preston (asker) Jul 13, 2008:

I've done a lot of reseach on this and as far as I understand, in a letter of credit the liability is on the bank and not on the applicant - e.g. company A (buyer) requests the bank to issue a letter of credit to company B (supplier in China). The bank accepts. Company A doesn't pay so company B goes to the issuing bank and demands payment.

In a "mandato di credito" the liability rests on the person that apponts a second party (a bank??) to grant credit to a third party. See below:

Mandato di credito
è un contratto in cui una parte dà incarico all'altra di far credito ad un terzo. Accettato l'incarico l'altra parte non può poi rinunciarvi, ma se il terzo risulterà inadempiente, la parte che ha conferito l'incarico risponderà dell'obbligazione come fideiussore di un debito futuro
Nel mandato di credito abbiamo, quindi, tre soggetti:
1. la persona che conferisce l'incarico (di solito attraverso una lettera di credito o credenziale) detto promissario;
2. la persona che accetta l'incarico detto promittente che farà credito al terzo;
3. il terzo, futuro debitore del promittente.
Come si vede con il mandato di credito il promissario garantisce il pagamento del debito costituendosi come fideiussore per debito futuro, ed è per questo motivo che attraverso il mandato di credito abbiamo la costituzione di una garanzia di tipo personale.
Il mandato di credito si costituisce per contratto, ma incerta è la sua natura giuridica poiché vi ritroviamo gli elementi del mandato e della fideiussione ; in ogni caso si esclude che al contratto partecipino tutti e tre i soggetti coinvolti essendo il terzo comunque estraneo alla stipulazione, come pure si esclude trattarsi di contratto a favore del terzo (art. 1411 c.c.).
http://www.dirittoprivatoinrete.it/mandato_di_credito.htm


I think it's probably some kind of "legally binding" comfort letter. See this:

Mandato di credito: qualora nella lettera di patronage oltre alla dichiarazione di controllo vi sia – da parte della casa madre – una espressa richiesta di fidi o di crediti a favore della società partecipata, si configura nettamente la fattispecie del mandato di credito. Negozio giuridico questo contemplato all’art. 1958 cod. civ., che testualmente recita: “Se una persona si obbliga verso l’altra, che le ha conferito l’incarico, a fare credito da un terzo, in nome e per conto proprio, quella che ha dato l’incarico risponde come fideiussore di un debito futuro…”.
http://www.laconsulenza.it/view_sezione.asp?idsezione=10&idv...

Meaning that, if liability is specifically undertaken in the "patronage/comfort" letter this then becomes a "mandato di credito" See below in this respect:

The comfort letter is a rather new phenomenon whose legal qualification is not yet
settled. One must distinguish non-binding from binding comfort letters; only the
latter are legally relevant.
An example: A sole or a majority shareholder of a financially weak company
sends a circular to the creditors of “his” company. He declares to be
responsible for the company debts. This is a binding declaration.
On the question how a binding comfort letter should legally be qualified, opinions
differ. These Rules take the view that such a declaration is a dependent personal
security (art. 2:102 (2)). Certainly, the author of a comfort letter does not intend to be
bound unconditionally; rather, the sender is prepared to support the company’s
indebtedness only, if and insofar as the company itself is obliged and reserves the
right, to invoke any defences and objections which the company itself may be able to
invoke.
http://www.era.int/web/en/resources/5_1095_6258_file_en.8989...

I thinks it's a rather new concept and I'm having difficulty backing my research. I know it's Sunday - and I sincerely hope that you're all out somewhere having a good time - but any suggestions on anything I might have missed would be greatly appreciated.

Julie