US UCC Article 5’s Non-Variable Provisions
How UCC Article 5 governs letters of credit in the US, its non-variable provisions, and the legal nuances that affect issuers and beneficiaries.
Published reports about the sudden collapse of Americanas SA into bankruptcy protection in mid-January 2023 suggest that the major Brazil retailer owes around USD 8 billion to thousands of creditors and that some portion of “inconsistencies” Americanas disclosed from its accounting may be linked to the accounting practice known as supplier finance.
A Bloomberg Law article described supplier finance as a process involving “a bank or third party paying a buyer’s suppliers at a discount earlier than they would be otherwise.” The Bloomberg Law article quoted Americanas’ former Chief Executive Officer Sergio Rial as informing investors on 11 January: “We see the nature of that supplier finance is more of bank debt nature,” adding, “So I have more debt than I had originally thought.”
For years there has been a lack of accounting rules for supplier finance methods. The International Accounting Standards Board sets the financial reporting guidelines used by Americanas and companies across certain jurisdictions. IASB is presently considering roll out of new rules that companies must disclosure that they use supplier finance arrangements.
In November 2021, the IASB published the Exposure Draft Supplier Finance Arrangements that proposes to amend specified Statement of Cash Flows and Financial Instrument Disclosures provisions. According to a January 2023 update, the IASB discussed implementation of its proposed amendments which would add disclosure requirements for an entity’s supplier finance arrangements and it deferred a decision about the effective date and transition requirements of the amendments.
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