SOMA Law Group advised a Netherlands-based Global Architectural Materials Corporation (the "Client") on complex legal and risk management issues regarding its supply structure to a major Korean conglomerate.
The Client intended to supply its products to a leading Korean conglomerate through a local Korean dealer. However, the conglomerate expressed reservations about entering into a direct contract with the dealer, citing concerns over the dealer's limited capital size and creditworthiness.
To facilitate the transaction, the Client considered providing a performance guarantee to backstop the dealer’s contractual obligations. SOMA was mandated to analyze the legal scope of liability associated with this guarantee and to devise comprehensive risk mitigation strategies.
A critical aspect of this mandate was determining the precise "weight" of the liability the Client would assume.
For the Client, who was unfamiliar with the Korean law, SOMA clarified the nature of the guarantee under the Korean Civil Code and defined the specific scope of obligations the Client would be liable for in the event of default.
In addition, we provided a detailed analysis of the defenses available to the Client as a guarantor against the creditor, as well as the limitations of such claims. This enabled the Client to fully understand the scope of obligations imposed by the agreement while clearly understanding its potential rights.
SOMA also analyzed risk hedging strategies from a commercial perspective.
We rigorously analyzed the efficacy of the collateral provided by the local dealer to the Client in exchange for the guarantee. We assessed whether the collateral was sufficient to cover potential losses and evaluated its enforceability, thereby calculating the Client's actual risk exposure.
Furthermore, SOMA reviewed the draft guarantee agreement to identify toxic clauses and proposed amendments to prevent any unreasonable expansion of the guarantor's liability.
Takeaways
As a result of this comprehensive analysis, the Client successfully finalized the supply contract structure, managing the risks associated with the transaction within a controllable range. This case demonstrates SOMA’s ability to bridge the gap between international business needs and local legal realities, ensuring secure market entry for global clients.
The Client intended to supply its products to a leading Korean conglomerate through a local Korean dealer. However, the conglomerate expressed reservations about entering into a direct contract with the dealer, citing concerns over the dealer's limited capital size and creditworthiness.
To facilitate the transaction, the Client considered providing a performance guarantee to backstop the dealer’s contractual obligations. SOMA was mandated to analyze the legal scope of liability associated with this guarantee and to devise comprehensive risk mitigation strategies.
For the Client, who was unfamiliar with the Korean law, SOMA clarified the nature of the guarantee under the Korean Civil Code and defined the specific scope of obligations the Client would be liable for in the event of default.
In addition, we provided a detailed analysis of the defenses available to the Client as a guarantor against the creditor, as well as the limitations of such claims. This enabled the Client to fully understand the scope of obligations imposed by the agreement while clearly understanding its potential rights.
We rigorously analyzed the efficacy of the collateral provided by the local dealer to the Client in exchange for the guarantee. We assessed whether the collateral was sufficient to cover potential losses and evaluated its enforceability, thereby calculating the Client's actual risk exposure.
Furthermore, SOMA reviewed the draft guarantee agreement to identify toxic clauses and proposed amendments to prevent any unreasonable expansion of the guarantor's liability.
As a result of this comprehensive analysis, the Client successfully finalized the supply contract structure, managing the risks associated with the transaction within a controllable range. This case demonstrates SOMA’s ability to bridge the gap between international business needs and local legal realities, ensuring secure market entry for global clients.