Releasing Bank Guarantees on JV Termination

The joint venture ends — but the bank guarantees don’t. Guarantee letters for projects, payment guarantees to suppliers, the Chinese parent’s guarantees for loans… remain effective, guarantee fees keep running, credit lines stay “occupied”. Forgetting to release guarantees is forgetting a financial “time bomb”. This article systematises the full release process.

1. Guarantee types to review on JV termination

Bank guarantees for the JV’s obligations: bid bonds, performance bonds, advance-payment guarantees, payment guarantees to suppliers;
Chinese parent guarantees: the parent guaranteeing the JV’s bank loans or obligations to counterparties;
Cross-guarantees between JV parties: the Vietnamese partner guaranteeing JV obligations and vice versa;
JV guarantees for third parties: the JV guaranteeing subsidiaries or contractors — rarer but exists.

First step: list every live guarantee — letter number, issuing bank, beneficiary, amount, tenor.

2. Release principle: the underlying duty done, the guarantee done

Guarantees are accessory obligations — attached to primary duties (loans, contracts). Banks release guarantees only when:

The primary duty is performed (debt repaid, contract completed and accepted);
Or the primary duty has legally ended (contract liquidation, debt restructuring);
Or a replacement guarantor steps in (the stake buyer replacing the Chinese parent).

You cannot “unilaterally declare” a guarantee over while the primary duty survives.

3. Bank-guarantee release: 6 steps

Review and classify: guarantees tied to completed duties (release now) vs surviving duties (handle further);
Complete the primary duties: repay debts, liquidate contracts, obtain acceptance — collect completion/acceptance minutes;
File the release request with the bank: release request + proof the primary duty is done + the original guarantee letter;
Bank review: checking file completeness — 5–15 working days;
Release and free the line: the bank confirms termination, releases the credit line and collateral (if any);
Retrieve the original letter: receive the stamped “released”/cancelled original — archive it.

4. Chinese parent guarantees: special handling

The trickiest type when the Chinese investor exits:

The lending bank (usually Vietnamese) lent on the parent’s guarantee — when the parent exits, the bank loses confidence in the loan;
Options: (a) repay fully before exit — cleanest; (b) the remaining party/buyer replaces the guarantee (its own guarantee or collateral); (c) restructure the loan on new terms;
Banks may accelerate if the credit contract has a change-of-control clause — check carefully;
Guarantee fees the parent paid: any partial refund — per the guarantee agreement;
China side: ending the guarantee may need internal reporting (parent board) — prepare resolutions.

5. Unexpired guarantees on completed duties: don’t leave “hanging”

Common situation: the contract is done, but the guarantee letter has 6 months left. Many businesses “ignore” it — a mistake because:

Guarantee fees run to expiry — money wasted;
Credit lines stay occupied — affecting other borrowing;
Wrongful-call risk: while effective, the beneficiary may still demand payment — disputes arise;
Solution: proactively seek early release — needing the beneficiary’s consent (confirming duties completed).

6. Guarantees for tax and State obligations

Some projects carry tax guarantees (for import-duty and import-VAT obligations);
On JV termination: finalise taxes → seek tax-guarantee release;
Guarantees for industrial-park obligations (land rent, infrastructure fees): liquidate the lease → release;
Sequence: complete State obligations first, then release — banks won’t agree otherwise.

7. Negotiating with banks: 5 keys

Complete files before meeting — banks move fast when not “chasing” each document;
Authorised persons: deal with the directly responsible credit officer, not intermediaries;
Clear roadmap: present the full JV-termination plan — banks relax when seeing the whole picture;
Replacement options: if the bank worries post-parent-exit, proactively offer substitute collateral or a new guarantee;
Timing: engage the bank as soon as termination is decided — don’t wait until everything’s done to “inform” the bank.

8. Guarantee-release costs

Early-release fees: some banks charge for pre-tenor releases;
Notarisation/certification: for termination instruments and liquidation minutes;
Opportunity cost: lines occupied during the wait — count into deal costs;
Counsel fees: reviewing and preparing release files — bundle into the divestment legal package.

9. Risks of forgetting release

Called after exit: the Chinese parent exited but its guarantee unreleased — the beneficiary demands payment, the bank claims against the parent;
Cross-border disputes: cross-border guarantees enforced across jurisdictions — costly and long;
Credit-rating impact: “hanging” guarantees affect parties’ credit profiles;
ODI closure blocked: the Chinese side requires confirmation that all obligations (including guarantees) are handled before closing the file.

10. Guarantee-release checklist on JV termination

Full list of live guarantees (bank + parent + cross);
Classify: primary duty done / surviving;
Complete primary duties; collect acceptance/liquidation minutes;
File release requests with each bank;
Handle the Chinese parent’s guarantees (repay/replace/restructure);
Retrieve released original guarantee letters;
Confirm credit-line and collateral release;
Update the Chinese ODI file on guarantee termination.

11. Counter-guarantees: unwinding the chain

Guarantees often come in chains: the Chinese parent guarantees the Vietnamese bank, while the JV counter-guarantees the parent; or two banks back each other across borders. Releasing one link without the others leaves exposures:

Map the chain: for each guarantee, identify its counter-guarantee (who secures the guarantor);
Release in reverse order: unwind from the outermost obligation inward — the counter-guarantee is released after the primary guarantee it secures;
Cross-border pairs: a Vietnamese bank’s guarantee backed by a Chinese bank’s counter-guarantee needs both banks’ release confirmations — coordinate the paperwork in parallel;
Fees: each link may carry its own early-release fee — budget the chain, not just the visible link.

12. Before signing the release: re-read the guarantee text

Release applications get rejected over wording details in the original guarantee letter. Before filing, verify:

Expiry vs claim period: some letters expire on a date but allow claims for weeks after — the release must cover the claim period, not just the expiry date;
Auto-extension clauses: guarantees that silently renew unless the beneficiary objects — check whether a non-objection notice was ever sent;
Governing law: cross-border guarantees may be governed by Chinese law or English law — the release procedure follows that law, not Vietnamese practice;
Beneficiary consent form: some banks require the beneficiary’s consent in a specific template — a generic confirmation letter gets bounced.

A one-hour re-read of the guarantee text saves weeks of rejected applications.

Guarantee release mechanics

Bank guarantees don’t evaporate when the JV ends — each one needs a formal release:

Inventory: list every outstanding guarantee — bid, performance, warranty, payment — with amounts and expiry;
Beneficiary consent: the beneficiary must return the original instrument or issue a written release;
Bank discharge: the issuing bank confirms discharge in writing and releases any cash collateral;
Expiry vs release: don’t rely on expiry dates alone — some guarantees auto-extend without a release notice;
Timeline: start the release process months before termination — beneficiaries are slow to respond.

Replacement guarantees during transition

Ongoing contracts may still need guarantee cover after the Chinese partner exits:

Gap analysis: identify which contracts require continuous cover beyond the termination date;
New issuer: the remaining party arranges replacement guarantees before the old ones are released;
Overlap period: run old and new guarantees in parallel briefly — never leave a gap;
Cost allocation: the termination agreement assigns the replacement cost — negotiate this early;
Counter-indemnity: release the exiting partner’s counter-indemnity once replacements are in place.

Contact us

FLAT Law Firm advises Chinese investors throughout the Vietnam investment cycle — from deal structuring and licensing to operations and compliance. Contact us for advice tailored to your project.

This article has been quality-reviewed by the FLAW AI Legal Council