assignment parent company guarantee

Parent Guarantee Agreement

Jump to section, what is a parent guarantee agreement.

A parent guarantee agreement is a contract between a parent company and a client that ensures certain performance requirements are met. The contract specifically states what type of performance requirements are expected, when they must be achieved by, and what consequences will result if the deadline is missed. It also contains vital details regarding what rules and regulations both contract parties must follow for the duration of the agreement.

The purpose of the parent guarantee agreement is to form a legal relationship between a parent company and client that wish to work together without risking their legal rights.

Common Sections in Parent Guarantee Agreements

Below is a list of common sections included in Parent Guarantee Agreements. These sections are linked to the below sample agreement for you to explore.

Parent Guarantee Agreement Sample

Exhibit 10.4

PARENT GUARANTEE

PARENT GUARANTEE, dated as of November 9, 2004, made by VCG Holding Corp. (the “ Guarantor ”), in favor of the lenders holding (the “ Lenders ”) those certain 12% Senior Subordinated Notes of Glenarm Restaurant LLC (“ Subsidiary ”) due in November, 2006. As there is only one Guarantee, references in this Guarantee that reference multiple Guarantees shall be disregarded.

W I T N E S S E T H:

Whereas, the Subsidiary has agreed to sell and issue to the Lenders, and the Lenders have agreed to purchase from the Subsidiary the Subsidiary’s 12% Senior Subordinated Notes due in November 2006 (the “ Notes ”), subject to the terms and conditions set forth therein; and

NOW, THEREFORE, in consideration of the premises and to induce the Lenders to enter into the Subscription Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Lenders as follows:

SECTION 1. DEFINED TERMS

1.1 DEFINITIONS

(a) Unless otherwise defined herein, terms defined in the subscription agreements pursuant to which the Lenders purchased the Notes (the “ Subscription Agreements ”).

(b) The following terms shall have the following meanings:

“ GUARANTEE ”: this Parent Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“ OBLIGATIONS ”: the collective reference to all obligations and undertakings of the Subsidiary of whatever nature, monetary or otherwise, under the Notes, the Subscription Agreement, the Security Agreement , the Warrants, the AIRs, the securities underlying the AIRs or any other future agreement (collectively, the “ Transaction Documents ”) or obligations undertaken by the Subsidiary to the Lenders, together with all reasonable attorneys’ fees, disbursements and all other costs and expenses of collection incurred by Lenders in enforcing any of such Obligations and/or this Guarantee.

1.2 OTHER DEFINITIONAL PROVISIONS. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The

meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

SECTION 2. GUARANTEE

2.1 GUARANTEE

(a) The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Subsidiary when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(b) Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2.2).

(c) Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Lenders hereunder.

(d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full.

(e) No payment made by the Subsidiary, any of the Guarantors, any other guarantor or any other Person or received or collected by the Lenders from the Subsidiary, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are paid in full.

(f) Notwithstanding anything to the contrary in this Agreement, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Subsidiary’s Common Stock ), the Guarantors shall only be liable for making the

Lenders whole on a monetary basis for the Subsidiary’s failure to perform such Obligations in accordance with the Transaction Documents.

2.2 RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Lenders, and each Guarantor shall remain liable to the Lenders for the full amount guaranteed by such Guarantor hereunder.

2.3 NO SUBROGATION. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Lenders, no Guarantor shall be entitled to be subrogated to any of the rights of the Lenders against the Subsidiary or any other Guarantor or any collateral security or guarantee or right of offset held by the Lenders for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Subsidiary or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Lenders by the Subsidiary on account of the Obligations are paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Lenders in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Lenders, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Lenders may determine.

2.4 AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Lenders may be rescinded by the Lenders and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Lenders, and the Subscription Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lenders may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Lenders for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Lenders shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Lenders upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Subsidiary and any of the Guarantors, on the one hand, and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Subsidiary or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Subscription Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Lenders, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud or misconduct by Lenders) which may at any time be available to or be asserted by the Subsidiary or any other Person against the Lenders, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Subsidiary or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Subsidiary for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Lenders may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Subsidiary, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Lenders to make any such demand, to pursue such other rights or remedies or to collect any payments from the Subsidiary, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Subsidiary, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Lenders against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

2.6 REINSTATEMENT. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Lenders upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Subsidiary or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for,

the Subsidiary or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

2.7 PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will be paid to the Lenders without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Subscription Agreement.

SECTION 3. REPRESENTATIONS AND WARRANTIES

Each Guarantor hereby makes the following representations and warranties to Lenders as of the date hereof:

3.1 ORGANIZATION AND QUALIFICATION. The Guarantor is a corporation, duly incorporated, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Subscription Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor’s ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

3.2 AUTHORIZATION; ENFORCEMENT. The Guarantor has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

3.3 NO CONFLICTS. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation or By-laws or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or

instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and state securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

3.4 CONSENTS AND APPROVALS. The Guarantor is not required to obtain any consent, waiver , authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

3.5 SUBSCRIPTION AGREEMENT. The representations and warranties of the Subsidiary set forth in the Subscription Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Subscription Agreement, and the Lenders shall be entitled to rely on each of them as if they were fully set forth herein, PROVIDED that each reference in each such representation and warranty to the Subsidiary’s knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor’s knowledge.

3.6 FOREIGN LAW. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Parent Guarantee and the Transaction Documents prior to rendering their advice.

SECTION 4. COVENANTS

Each Guarantor covenants and agrees with the Lenders that, from and after the date of this Guarantee until the Obligations shall have been paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

SECTION 5. MISCELLANEOUS

5.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Lenders.

5.2 NOTICES. All notices, requests and demands to or upon the Lenders or any Guarantor hereunder shall be effected in the manner provided for in the Subscription Agreement; PROVIDED that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on SCHEDULE 5.2.

5.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. The Lenders shall not by any act (except by a written instrument pursuant to Section 5.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Lenders, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Lenders of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lenders would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

5.4 ENFORCEMENT EXPENSES; INDEMNIFICATION.

(a) Each Guarantor agrees to pay, or reimburse the Lenders for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Lenders.

(b) Each Guarantor agrees to pay, and to save the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(c) Each Guarantor agrees to pay, and to save the Lenders harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with

respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Subsidiary would be required to do so pursuant to the Subscription Agreement.

(d) The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Subscription Agreement and the other Transaction Documents.

5.5 SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Lenders and their respective successors and assigns; PROVIDED that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Lenders.

5.6 SET-OFF. Each Guarantor hereby irrevocably authorizes the Lenders at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lenders to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Lenders may elect, against and on account of the obligations and liabilities of such Guarantor to the Lenders hereunder and claims of every nature and description of the Lenders against such Guarantor, in any currency, whether arising hereunder, under the Subscription Agreement, any other Transaction Document or otherwise, as the Lenders may elect, whether or not the Lenders have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Lenders shall notify such Guarantor promptly of any such set-off and the application made by the Lenders of the proceeds thereof, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lenders under this Section are in addition to other rights and remedies(including, without limitation, other rights of set-off) which the Lenders may have.

5.7 COUNTERPARTS. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

5.8 SEVERABILITY. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

5.9 SECTION HEADINGS. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

5.10 INTEGRATION. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Lenders relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

5.11 GOVERNING LAW . THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAWS.

5.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Guarantor hereby irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Guarantee and the other Transaction Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, located in New York County, New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Guarantor at its address referred to in the Subscription Agreement or at such other address of which the Lenders shall have been notified pursuant thereto;

(d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

5.13 ACKNOWLEDGEMENTS. Each Guarantor hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(b) the Lenders have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c) no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Lenders.

5.14 RELEASE OF GUARANTORS. Subject to Section 2.6, each Guarantor will be released from all liability hereunder concurrently with the repayment in full of all amounts owed under the Subscription Agreement, the Notes and the other Transaction Documents.

5.15 SENIORITY. The Obligations of each of the Guarantors hereunder rank senior in priority to any other unsecured Debt (as defined in the Notes) of such Guarantor.

5.16 WAIVER OF JURY TRIAL. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE LENDERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

Reference : Security Exchange Commission - Edgar Database, EX-10.4 5 dex104.htm PARENT GUARANTEE AGREEMENT , Viewed March 7, 2023, View Source on SEC .

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Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administration, and litigation. Terry is a graduate of the Georgetown University Law Center, where he was an Editor of the law review. He is active in a number of economic development, entrepreneurial accelerators, veterans and civic organizations in Florida and New York.

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Mr. Pomeranz serves as the principal of Pomeranz Law PLLC, a boutique law firm representing clients across myriad industries and verticals. Before founding the firm, Mr. Pomeranz served as Senior Vice President, Legal & Compliance and General Counsel of Mortgage Connect, LP in 2017. Mr. Pomeranz also served as Counsel, Transactions for Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) beginning in 2013, and was based in the company’s C-Suite in Luxembourg City, Luxembourg. Mr. Pomeranz began his career with Mainline Information Systems, Inc. as an in-house attorney.

Rinky S. Parwani began her career practicing law in Beverly Hills, California handling high profile complex litigation and entertainment law matters. Later, her practice turned transactional to Lake Tahoe, California with a focus on business startups, trademarks, real estate resort development and government law. After leaving California, she also served as in-house counsel for a major lending corporation headquartered in Des Moines, Iowa as well as a Senior Vice President of Compliance for a fortune 500 mortgage operation in Dallas, Texas prior to opening Parwani Law, P.A. in Tampa, Florida. She has represented various sophisticated individual, government and corporate clients and counseled in a variety of litigation and corporate matters throughout her career. Ms. Parwani also has prior experience with state and federal consumer lending laws for unsecured credit cards, revolving credit, secured loans, retail credit, sales finance and mortgage loans. She also has served as a special magistrate and legal counsel for numerous Florida County Value Adjustment Boards. Her practice varies significantly from unique federal and state litigation cases to transactional matters. Born and raised in Des Moines, Iowa, Ms. Parwani worked in private accounting for several years prior to law school. Her background includes a Certified Public Accountant (CPA) certificate from Iowa (currently the license is inactive) and a Certified Management Accountant (CMA) designation (currently the designation is inactive). Ms. Parwani or the firm is currently a member of the following organizations: Hillsborough County Bar Association, American Bar Association, Tampa Bay Bankruptcy Bar Association, National Association of Consumer Bankruptcy Attorneys, and the American Immigration Lawyers Association. She is a Fellow of the American Bar Association. Ms. Parwani is a frequent volunteer for Fox Channel 13 Tampa Bay Ask-A-Lawyer. She has published an article entitled "Advising Your Client in Foreclosure" in the Stetson Law Review, Volume 41, No. 3, Spring 2012 Foreclosure Symposium Edition. She is a frequent continuing legal education speaker and has also taught bankruptcy seminars for the American Bar Association and Amstar Litigation. She was commissioned by the Governor of Kentucky as a Kentucky Colonel. In addition, she teaches Immigration Law, Bankruptcy Law and Legal Research and Writing as an adjunct faculty instructor at the Hillsborough Community College Ybor campus in the paralegal studies program.

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Performance bonds and parent company guarantees

• Author Derryn Rolfe

Performance bonds and/or PCGs are often required of the contractor in building and engineering projects as a means of securing the purchaser’s position, and limiting their losses, in the event of the contractor’s default. But what’s the difference?

A performance bond is an insurance policy. The contractor takes out the policy with the bondsman – either their own bank or an insurance company – that will, subject to the provisions of the bond, pay to the purchaser a sum of money to offset its losses. The wording of performance bonds varies dramatically, with certain phases being key to how easy it is for the purchaser to call upon it. Over the last 20 years the market has hardened considerably, in common with most insurances, so that the classic “on demand” bond is now rarely available. This type, as the name suggests, means that the purchaser simply must demand payment from the bondsman: clearly a high risk for the bondsman, and the reason why most bonds now require the purchaser’s losses to be proven one way or another. Exactly what level of proof is required is the point of debate between those giving and those receiving the bond. The normal wording now is “established and ascertained”, which is based on the procedures and mechanisms of the underlying contract.

Similarly important is the co-existence of liability with the contractor and the bondsman; the Association of British Insurers (ABI) commonly-used model form of bond doesn’t include this, but the purchaser may well want to do so to avoid the necessity of pursuing the contractor for its losses as a condition precedent to going after the bondsman. The contractor, on the other hand, would wish to avoid this as a co-obligor clause may make the bond more difficult – or expensive – to obtain.

Assignment clauses are another point of negotiation, and whether the ability of the purchaser to assign the bond without the prior consent of the guarantor and contractor is important usually depends on whether or not there is an external funder for the project. A funder will always want the bond to be assignable and will often hold an executed but undated deed if assignment in escrow as part of its security package.

The ability of the purchaser to call in the bond upon the insolvency of the contractor is usually key: it is, sadly, the most common reason for needing to do so. There is still debate about the effect of a 1994 case called Perar BV v General Surety and Guarantee Co Ltd in which the Court of Appeal confirmed that insolvency is not necessarily a breach of a building contract and therefore not covered by the bond. Standard and model form contracts so usually include insolvency as a breach of the contract, but there is still a debate about the timelines of making a claim under a JCT in particular, so it is worth ensuring that it is explicitly covered.

But regardless of the details of the drafting, the point of a performance bond is to provide cash; a parent company guarantee, however, could instead (or, indeed, also) be used to require the contractor’s parent company to step in and compete the performance of the contractor’s obligations in the event of their default.

PCGs rise and fall in popularity and use, although the first requirement is, of course, that the contractor has a parent company. If it does, it is normal for the guarantee to be from the ultimate parent company, as complicated corporate structures could mean that the purchaser is holding a guarantee from a shell company with no assets. Some contractors prefer a PCG because it doesn’t affect their credit rating in the same way as a performance bond and can come at zero cost. It does sit as a liability on the books of the parent company, though, so company policy may mean that PCGs are not always free. As with performance bonds, the detail of the drafting is key to the ease with which the purchaser can get recompense. Many of the same issues apply as with bonds, but whereas bonds tend to be for a percentage of the contract sum PCGs tend to be for the entirety of it. The most important provision for the purchaser is to ensure that the guarantor cannot act against the contractor for its own losses whilst the guarantor’s liabilities to the purchaser are unsatisfied.

So which is best? Neither: they both have their place. If the purchaser definitely wants the project completed with single-point design or workmanship liability, or if time for completion is the critical issue, then a PCG is the only option. If they want cash, then a bond is probably the answer – an independent bond is safer than one from a parent company which may also go into insolvency. Asking for both is, except for major projects, probably overkill.

If you have any questions on Performance bonds or parent company guarantees, our Construction and Engineering team will be happy to help. Please get in touch for further information

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The increased volume of cases brought before the English courts in recent years on the topic of guarantees has highlighted the fundamental need for guarantors and beneficiaries to clearly understand the principles and nature of the law governing this complex area of collateral support .

Guarantees come in a variety of guises and there is often a great deal of misunderstanding surrounding the legal principles underlying them. This is not helped by two relatively common phenomena: the draftsperson’s lack of precision in their work and an arbitral or judicial body’s ability to blur the lines between classic guarantees and demand guarantees (otherwise known as performance bonds or default bonds). Labelling a contract as a ‘guaranty’ does not automatically make it a guarantee in the pure, legal sense. Instead, a guarantee’s existence is determined by the nature of the obligation and the relationship created, and not by the prose used to describe it.

In an industry where the commercial exposure to financial risk is high, the nature of, and ability to enforce, collateral support takes increasing prominence. Demand guarantees and parent company guarantees (“PCGs”) are popular forms of security provided in upstream oil and gas transactions. Much work has been undertaken to regulate the international practice of demand guarantees, but in stark contrast, a similar attempt to distil and standardise the make-up of PCGs has not been pursued. Whilst the drive behind the codification of demand guarantees has stemmed from the inadequacies highlighted by the construction and banking sectors, the issues surrounding PCGs have largely been ignored.

Building on the approach taken by the International Chamber of Commerce (“ICC”) Uniform Rules for Demand Guarantees (“URDG”), and given the widespread use of PCGs in connection with upstream petroleum contracts, this article briefly sets out the main differences between demand guarantees and PCGs, then examines the latest version of the URDG (the “URDG 758”) and finally considers whether it is time for the wheels to be set in motion to homogenise PCG terms, with a particular focus on the oil and gas industry.

Demand Guarantees v PCGs

Demand guarantees originated in the construction industry over forty years ago. In its traditional form, a demand guarantee is a direct undertaking by the guarantor which imposes a primary obligation on it to pay a specified amount to the beneficiary on its first demand for payment in situations where the principal fails to perform the underlying contract. The presentation of specified documents triggers payment from the guarantor to the beneficiary, even if defences are available to the principal against the beneficiary. The construction of the demand guarantee means that it will be strictly interpreted in accordance with its provisions and will not be coloured by the underlying guaranteed obligation.

PCGs, on the other hand, are very different beasts, primarily because they are largely influenced by the underlying guaranteed obligation. In its purest sense, a PCG is a conditional promise by a parent company to answer to a third party for the debt or default of its subsidiary; it is a secondary obligation which is contingent on the subsidiary’s primary obligation under the underlying agreement, co-extensive with the liability of its subsidiary, and fixed only by the subsidiary’s failure to satisfy its side of the bargain with the beneficiary. If the subsidiary has defences to liability, then those defences are equally available to the parent company.

Guarantors have traditionally been the darlings of the courts, and where there has been a dispute over contractual interpretation, the guarantee has been interpreted in their favour. Largely as a result of this, the classic nature of English law guarantees has been eroded over the last decade or so and modern PCGs now often extend to cover the primary obligation (by virtue of including an indemnity to cover when the beneficiary has experienced loss under the underlying contract) and state that they are payable on demand. If only a classic form of guarantee existed, the guarantor would be exonerated from its obligations in cases where the guarantor’s secondary obligation, or the primary obligation of its subsidiary, was found to be invalid. In order to ensure that the PCG survives in such circumstances, beneficiaries have sought to protect their interests by including indemnity formulations in their PCGs as well.

Uniform Rules for Demand Guarantees

Demand guarantees are more complex in nature than PCGs given that banks are involved in the demand guarantee arrangement, in addition to the guarantor and the beneficiary (who are the only two parties to a PCG). Over the years, complaints from disgruntled contractors over the treatment of demand guarantees led the ICC to step in to regulate this form of collateral support by publishing a series of contractual rules. The URDG 458 was the ICC’s first attempt to codify demand guarantees and was used in practice for eighteen years, being succeeded only in 2010 by the URDG 758.

The objective of the URDG 758 was ambitious but simple: to become the international standard practice for demand guarantees. In doing so, the URDG 758 sought to bring precision, clarity and comprehension into the 21 st  century world of demand guarantees in order to create a platform on which a successful demand guarantee practice could be built.

The URDG 758 applies to any demand guarantee or counter-guarantee in which it is incorporated by reference. In 35 articles, the URDG 758 covers everything from the requirements for a demand, to the extent of the guarantor’s liability under the demand guarantee and the treatment of force majeure events covering documentary instruments. A skeleton form of demand guarantee is appended to the uniform rules, and optional clauses are also provided, which afford flexibility to the parties when entering into their contract.

However, the URDG 758 is diluted by the fact that it is only voluntary in nature and relies on the draftsperson to incorporate its set of rules. That said, even if demand guarantees are issued without incorporating the URDG 758, over time the URDG 758 could be used to plug the gap or influence the implementation of national laws even if it is not expressly recognised in the demand guarantee itself.

The URDG 758 is also potentially undermined by the fact that the provisions of the national law governing the demand guarantee are expressed to prevail over the URDG. The URDG 758 provides, unless otherwise agreed, that the guarantor’s law and jurisdiction applies to the guarantee so, to the extent of any conflict between the domestic law of the guarantor and the rules of the URDG 758, the domestic law will apply. However, given the extensive research that the ICC conducted in monitoring international demand guarantee practice in preparation for compiling the URDG 758, the scope for conflict should be fairly limited.

So has the objective of the URDG 758 been successfully realised? According to some, the URDG 758 is criticised as having introduced some new ambiguities into the world of demand guarantees and so is thought to remain a work in progress. According to others, the use and uptake of the URDG 758 at a satisfactory rate is seen as a testament to its success. The jury is still out.

Uniform Rules for PCGs

Unlike demand guarantees, there are no equivalent internationally recognised rules for PCGs. Although many of the model form oil and gas industry contracts, such as Oil & Gas UK’s decommissioning security agreement, the Association of International Petroleum Negotiators (“AIPN”) joint operating agreement (“JOA”) and the AIPN LNG Master MSA, include a placeholder for a PCG, no form is provided or guidance given as to its substance and there has been little appetite so far to do so.

The question of who is best placed to initiate and conduct an assessment of the PCG market is open to debate. With the wealth of experience that the ICC has accumulated in producing the standard text for demand guarantees, on an international platform the ICC is the most obvious choice of candidate. At a domestic level, Oil & Gas UK could be a contender. In August 2007, the Oil & Gas UK Standard Contracts Committee published a model form of PCG and a short paper setting out some general principles for use. Although Oil & Gas UK’s model form of PCG and general principles could be used as an industry starting point, it would be beneficial for the industry to re-visit these precedents; seven years have passed since the preparation of these materials and there has been a significant amount of case law during this time on the subject of guarantees.

Given the vast deployment of PCGs in the oil and gas industry, that the underlying documents to which they relate vary greatly in content and that there are usually a multitude of sins for which PCGs are provided to cover, perhaps standardising an industry set of rules for PCGs may prove difficult in practice.

The JOA is a good example of an underlying upstream petroleum contract, the obligations of a party under which are frequently guaranteed. Typically, under the terms of the JOA, upon any proposed transfer by a co-venturer of part or all of its participating interest, the remaining co-venturers’ prior written consent will be required. Depending on the financial capacity of the proposed transferee, the remaining co-venturers may seek a PCG from the transferee’s parent in consideration for consenting to the proposed transfer. The terms of a PCG in this example are likely to be broad in nature but it is also important for the guarantor to consider whether the PCG should be limited in any way. For instance, to the extent that any amounts have been paid in full by the guarantor under the PCG and the beneficiary receives any proceeds of sale of petroleum under the JOA relating to the same obligations, the PCG should provide that the beneficiary should pay the proceeds of sale to the guarantor in order to ensure that the beneficiary does not benefit from double recovery in relation to the same default. Any codification of PCGs in the oil and gas industry will therefore need to be sensitive to the fact that this form of collateral support is often bespoke to the underlying contract, and so any standard form PCG that is developed by the industry will require a variety of optional clauses which the parties can choose to insert in order to mirror the flexibility granted by the form of demand guarantee under the URDG 758.

Consultation with governments in the codifying of international PCG practice in the oil and gas sector may prove to be a stumbling block. For instance, the British government, through the Department of Energy and Climate Change (“DECC”), requires that licensees and proposed licensees demonstrate sufficient financial capacity to meet their share of the proposed work programme and their existing licence commitments. PCGs from oil and gas companies may be requested by DECC in order to secure a licence award, an assignment, well consents for exploration and appraisal wells, a field development and decommissioning liabilities, as they evidence the availability of cash resources the licensee has access to in order to pay its share of costs. DECC has two prescribed forms of PCG that it is prepared to accept (the multi-licence PCG and the licence-specific PCG) and does not entertain any substantial deviation in form or substance from these standard forms. Educating governments and practitioners will therefore be vital to the success and implementation of an independent PCG practice in the oil and gas industry, and it will be important to involve these bodies in any PCG codification process. 

Although it is likely that any push to regulate PCGs in the international oil and gas industry will be resisted by those companies who already have approved forms of precedent guarantees in place, in order to level the playing field among PCG issuers, and on the premise that uniform rules equal increased certainty and predictability for both guarantors and beneficiaries alike, there may be merit in codifying PCG practice and creating a standard form of PCG. The industry will need to buy into the argument that the advantages that a codified system has to offer outweigh the disadvantages of employing a more rigid arrangement.

The establishment by the ICC of the URDG was no mean feat and involved extensive monitoring of international demand guarantee practice, the product of which took around two-and-a-half years to perfect. Any regulation in the international practice of PCGs should build on the legacy of the URDG 758 and borrow from its wealth of experience; it would be a mistake for any PCG task force to ignore its struggles and shortcomings. Any group tasked with such codification should not enter into such an assignment half-heartedly, as the process is likely to require persistent commitment and dedication in order to produce a workable standard protocol, which balances the power between the guarantor and the beneficiary and which can be successfully used across the industry.

In the words of Arnold Bennett, “Any change, even a change for the better, is always accompanied by drawbacks and discomforts.” Bearing this in mind, in the short term, the success of any future PCG codification will depend on the ability of the draftsperson to recognise the clarifications, drafting amendments and expansion of scope requirements necessary to enhance any adopted standard. In the long term, it will be marked by the endorsement and acceptance by the oil and gas industry; the percentage of guarantees which adopt the uniform rules on PCGs compared to those that are not; and the way in which the uniform rules are applied.

Given the attention that the English courts have paid to the law of guarantees in recent years, the impetus exists for uniform rules on PCGs to be codified, but the concept at present lacks momentum. Perhaps now, on the eve of the fourth anniversary of the URDG 758, the oil and gas industry should embrace this new challenge and engage in setting the wheels in motion to give this proposal teeth and clear direction.

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Parent Company Guarantee: Everything You Need to Know

A parent company guarantee is a set of expectations that must be adhered to when a contractor or subsidiary company enter into contracts with a client. 3 min read updated on January 01, 2024

A parent company guarantee is a set of expectations that must be adhered to when a contractor or subsidiary company enter into contracts with a client.

Parent Company Guarantee

A parent company guarantee is a promise that a company will meet the performance requirement that their clients expect. These come into play when a contractor or subsidiary enter into a contract with clients. The expectations outlined in this guarantee are detailed by the parent company. The document that outlines a parent company guarantee should clearly state that the parent company is only held liable if the contractor or subsidiary company is in breach of the contract and fails to correct the breach in question.

Should this occur, the parent company's liability to the client will not be greater than that of the contractor or subsidiary company . A parent company guarantee, or PCG, is a promise given by a contracting party's holding company. This is done in favor of the other party involved in the contract as a measure to guarantee the expected performance of contractual obligations.

The terms of an agreement might have limited value associated with them if the party you are entering into a contract with does not have the necessary resources or assets to back up the commitments they have made. Sales subsidiaries of suppliers might be potentially risky in terms of contracts and purchases if they don't possess the necessary resources or assets on their own. A parent company is generally not held liable for the sales of their contractors or subsidiary companies unless they specifically agree to take on the liability. The exception to this is in tort liability scenarios.

Even if both the subsidiary and the supplier sign your contract, the supplier is not normally held liable for the subsidiaries actions or purchases made through them unless the contract specifically states that there is a joint liability. In cases such as this, both parties are generally held liable.

There are multiple reasons that a parent company might choose to incorporate what is known as a "Buyer's Purchase" from a subsidiary company. Some of these reasons are:

• Avoiding liability on sales
• Conducting business directly in certain areas
• Avoiding the need to be registered in those areas
• Protecting prices and profits as a form of purchase through subsidiaries

A parent company might also want to avoid being held liable for their subsidiary companies because not every subsidiary is completely owned by the parent company. They also may wish to be held responsible for any promises that a subsidiary company makes in their contractual agreements.

When Would a Parent Company Guarantee Be Used?

In a construction setting , a parent company will normally offer a guarantee as a measure to bolster their subsidiary companies' financial credibility. In the event that one of the parent company's subsidiaries enters into a contract with a third party, the other entity involved may have an interest in ensuring that the contract is properly carried out. In cases such as this, they will look to other companies in the group to offer performance and financial guarantees to support these expectations.

A parent company guarantee offers a measure of comfort regarding the obligations that the subsidiary company in question is expected to meet. Parent company guarantees are common among employers because they provide a level of protection if the contractor should default on their contractual obligations. Protection of this nature can cover the employer in the event that the contractor in question is in breach of their contract. In many cases, this takes place on the contractor's insolvency.

Parent company guarantees in a construction setting are commonly offered by the holding company of the contractor. They will normally favor the employer as a means of guaranteeing certain performance obligations of the contract. Parent company guarantees are also commonly used by contractors as a means of protection should a subcontractor default on their obligations. Contractors may also ask for a parent company guarantee from employers when they are concerned about their employer's ability to pay wages. This might be a case in which the employer is an SPV that was set up by a larger holding company for a specific project.

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Home / Construction / Contract Management / Parent Company Guarantee

Parent Company Guarantee   (B149)

Who can use this contract.

This parent company guarantee is for use where a company entering into a contract is required by its client to provide a guarantee of performance from its parent company.

What is this contract for?

The main aim of a parent company guarantee is to give the client some security.  If the client’s contractor fails to perform or becomes insolvent, the client has can claim under the parent company guarantee.  The parent company then either to perform the contract or pay the losses incurred by the client as a result of the subsidiary’s default.

What are the main issues?

While fairly balanced, this document is drafted from the parent company’s perspective and the wording makes it clear that the parent company’s liability only arises if its subsidiary commits a breach of its contract and fails to rectify the breach.

The liability of the parent is limited so that it will be no greater than that of the subsidiary under its contract with the client.

You can use this document if you are a company acting as guarantor for a subsidiary’s contracts, and want clarity on the terms of your guarantee agreement.

What detailed terms does the contract contain?

The main points cover:

• notice of liability
• notices between parties
• third party rights
• governing law

For more information on each of these sections, see our Explanatory Notes  which you will  receive when you download the document from our website.

For information on signing documents see our Contract Signing page

When I download the document, can I change it and/or use it more than once?

Yes, all ContractStore’s templates are in MS Word and you can use the contract on more than one project. For more information, watch the video on this page of our website or see our FAQs

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ContractStore supplies templates and is not a law firm.  But experienced lawyers write all our templates, so we can arrange legal assistance for customers who need special terms in one of our documents or a bespoke template. . For more information see our Legal Services page.  For more information see our Legal Services page .

Contract Author – Giles Dixon

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Does your guarantee do what you think it does? Plan ahead with our checklists

Readers of our insight Top Five Considerations for Every Guarantee will have seen that planning guarantee provisions before drafting can bring both cost and time benefits . However, in the heat of a transaction, parties may turn their focus to the main deal documents (e.g. sale, development or loan agreements) which carries the risk that equal emphasis isn't given to the content of guarantees.

Ultimately, if a transaction goes sour and as many court cases have shown, that lack of emphasis can lead to litigation and potentially, parties either being unable to recover under a guarantee, or discovering that their liability under one was far greater than expected.

If you want to be certain that you can rely on a guarantee, it's crucial to understand what that guarantee says and allows you to do before it is signed. And if you are the guarantor, understanding what liability could come your way and when, is crucial to avoid any nasty shocks in the future.

So how can you go about ensuring that a guarantee covers what you expect? One way is to consider some key commercial questions at an early stage, so that the correct terms can be drafted into the document. Heads of terms are usually considered for key documents and given the importance of guarantees, it makes commercial sense to consider a similar approach for them too.

To assist, we have produced two checklists. One for guarantee beneficiaries and one for guarantors. These provide many of the key considerations in a parent guarantee type situation and are also useful in other scenarios, as many of these considerations are common across different types of guarantee.

Whilst no checklist can be completely exhaustive, we hope that you find these useful. However, if you are unsure how to approach a guarantee, please contact one of our experts who would be happy to assist.

Part A: Guarantee checklist - Beneficiary

This checklist considers some of the key areas to consider when approaching a parent company guarantee from the guarantee beneficiary's perspective. References to 'Principal Debtor' mean the person/entity whose obligations are to be guaranteed.

Considerations

Which obligations do you need guaranteed?

Payment obligations only?

Performance obligations only?

Payment and performance obligations?

Under single contract or multiple contracts?

Will it include any amendments to those obligations/contracts?

Do you want an indemnity in the event that the underlying Principal Debtor obligations become invalid, illegal or unenforceable and you sustain loss as a result?

In what circumstances do you want to be able to call on the guarantee?

Payment default by the Principal Debtor?

Any default by the Principal Debtor?

Do you want to be able to claim under the guarantee if the Principal Debtor hasn't defaulted first?

Will the guarantee have a liability cap?

If yes, what amount?

When are you willing to release liability under the guarantee?

Upon the occurrence of a specific contractual trigger(s)?

Only when you are satisfied that all Principal Debtor obligations have been performed/liabilities have been paid?

Will the guarantee have a longstop date?

When do you want to be able to make demand under the guarantee?

• At any time; or
• Following actual default by the Principal Debtor?

What evidence will you produce to make a demand?

Copy of the demand made on the Principal Debtor?

Other confirmation?

Are there any other liabilities that you currently/may in the future owe to the Guarantor?

If yes, do you want to restrict the ability of the Guarantor to be able to set-off those amounts against amounts owed to you under the guarantee?

Is there any risk of any amounts due under the guarantee being reduced/withheld due to withholding tax or other tax reasons? [1]

If yes, do you require appropriate tax language to ensure that amounts are grossed-up/paid in full?

Are there any cross-jurisdictional considerations?

If yes, do you need a currency indemnity [2] ?

How do you wish to be able to serve notice (post, courier, e-mail, fax?) [3]

Do you need the benefit of the guarantee to be assignable?

Governing law

What law will govern the guarantee?

Where is the guarantor based?

In which jurisdictions do you need to be able to bring proceedings? [4]

If the guarantor is based outside of England & Wales, do you require a legal opinion? [5]

If the guarantee is governed by laws other than English law, do you require a legal opinion?

Part B: Guarantee checklist - Guarantor

This checklist considers some of the key areas to consider when approaching a parent company guarantee from the Guarantor's perspective. References to 'Principal Debtor' mean the person/entity whose obligations are to be guaranteed.

What obligations are you willing to guarantee?

Are you willing to indemnify the guarantee beneficiary for loss it sustains if the underlying Principal Debtor obligations become invalid, illegal or unenforceable?

In what circumstances do you want the guarantee beneficiary to be able to call on the guarantee?

Do you want the guarantee beneficiary to be able to claim under the guarantee if the Principal Debtor hasn't defaulted first?

When do you want your liability under the guarantee to be released?

Automatically on the occurrence of specific contractual trigger(s)?

When do you want the guarantee beneficiary to be able to make demand under the guarantee?

What evidence do you need the guarantee beneficiary to produce to make a valid demand?

Can an amount be claimed if it is disputed under the Principal Debtor contract?

Are there any other liabilities that you currently/may in the future may be owed by the guarantee beneficiary?

If yes, do you want to be able to be able to set-off amounts owed by you under the guarantee against those amounts?

If any amounts due under the guarantee have to be reduced/withheld by you due to withholding tax or other tax reasons, do you want to be liable for gross-up of those? [6]

If yes, are you willing to provide a currency indemnity [7] ?

How do you require notice/demands to be served under the guarantee (post, courier, e-mail, fax?) [8]

Can the benefit of the guarantee be assigned by the guarantee beneficiary?

What will the governing law of the guarantee be?

Where can proceedings be brought? [9]

[ 1 ] If you are unsure, you should consider taking appropriate professional advice. [ 2 ] Currency indemnities are often included where amounts, claims and awards in relation to agreements may need to be made in different currencies. [ 3 ] Where parties are based in different jurisdictions, notice provisions will need to work in each jurisdiction. [ 4 ] Consider whether you need the flexibility to bring proceedings in different jurisdictions. [ 5 ] Obtaining a legal opinion may provide you with day one comfort that the guarantor has the capacity to enter into the guarantee and/or that a judgment obtained in relation to the guarantee will be enforceable in the guarantor's jurisdiction. [ 6 ] If you are unsure of your tax position, you should consider taking appropriate professional tax advice. [ 7 ] Currency indemnities are often included where amounts, claims and awards in relation to agreements may need to be made in different currencies. [ 8 ] Where parties are based in different jurisdictions, appropriate notice provisions should be considered. [ 9 ] Bear in mind that the cost/complexity of defending proceedings in different jurisdictions may vary.

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A parent company guarantee is a type of financial guarantee that is typically used in business transactions. It is a guarantee from the parent company to the lender that the debt will be repaid if the borrower defaults. This type of guarantee can provide more security for the lender and may help to get better loan terms.

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📁 Dividend waiver

💳 Website notification

📃 List of documents

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💸 Takeover timetable

✏️ Director's statement of responsibility

💸 Acceptance condition

💶 IPO document list

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What’s the (parent company) guarantee?

• Using your device

Parent company guarantees (PCGs) are often used in relation to construction project to bolster the financial reliability of a building contractor. With contractor insolvencies continuing to make the headlines and reports from KPMG that construction industry insolvencies are rising at a quicker rate than other UK industries, it seems a good time to question the value that PCGs can bring to projects, and look more closely at the protections they can offer. 

Guarantee vs indemnity

Understood in its purest sense, a PCG is a contractual promise to ensure the guaranteed party performs their obligations under a contract. A guarantee is a contractual arrangement that creates a secondary obligation to ensure fulfilment of a primary obligation. The guarantor’s obligations are contingent and dependant on the underlying contract. So returning to a construction scenario where a guarantee is given in respect of building contractor, the guarantor will have no greater liabilities than those of the building contractor in the building contract. Furthermore, the guarantee will end if the underlying building contract is terminated, becomes invalid or ends. 

A guarantee is different to an indemnity. An indemnity creates a primary obligation to ensure the fulfilment of an obligation given by one party to another. An indemnity is independent of the underlying contract and, therefore, generally survives the termination, invalidity or ending of the underlying contract. 

Developers often seek to ensure PCGs are on terms that offer something more than a pure guarantee and seek to create both a guarantee and indemnity from the guarantor. Contractors, on the other hand, will look to ensure the drafting confines the obligations of the parent company to those of a pure guarantor. Recent experience reveals some nervousness in the market from contractors, which has resulted in a shift away from the availability of parent company indemnities for a large number of projects.

Against this background, it is important to be aware of the issues that can arise in enforcement of pure guarantees and ensure that care is taken to ensure PCGs offer the protection and value intended by the parties. With this in mind, here are our top five issues to consider.  

1. Cover off the formalities

Guarantees are contracts and, therefore, must contain all the necessary components of a contract – namely offer, acceptance, consideration and intent to create legal relations. In a construction scenario, the parent company guarantor will rarely be entitled to any payment or direct benefit under the building contract, such that there is a valid argument that a parent company cannot give good consideration in respect of any guarantee it may offer. To overcome this difficulty, ensure a PCGs is executed as a deed, since deeds, unlike simple contracts, do not require the exchange of consideration to be enforceable. 

Section 4 of the Statue of Frauds 1677 requires guarantees to be in writing and signed by the guarantor or a person authorised by the guarantor. It is interesting to note that the courts have taken a progressive view as to what constitutes in writing and signature by the guarantor, such that an exchange of emails may well suffice ( Golden Ocean Group Ltd -v- Salgaocar Mining Industries PVT Ltd and another [2012] EWCA Civ 265). However, to be on the safe side, and to avoid costly and unnecessary disagreement, it is recommended that all the terms of a guarantee should be set out in a printed signed document. 

2. Check the capacity of the parent company

The company/organisation giving the PCG needs to have the requisite capacity to offer the guarantee or else the provisions of the contract will not come into effect and the guarantee will be void and unenforceable. Whether an organisation has capacity to give a guarantee depends on the terms of its constitution. For most limited trading companies, the giving of guarantees will be sufficiently ancillary to their core purpose, such that the issue of capacity will not arise. However, it is always worth double-checking an organisation’s constitution, especially if you believe provision of a guarantee is not ancillary to the core purposes of that organisation. This scenario may arise where the organisation giving the guarantee is not a limited company, is based outside of the jurisdiction, or is a not for profit/charitable organisation. 

3. Get the scope right

As with all contracts, there is considerable flexibility in the scope and application of any guarantee. In the construction industry, guarantees are commonly understood to cover losses in the event of a default or breach by the contractor. But that begs the question, what failures will amount to a contractor default, and will that always trigger an entitlement to call on the PCG? For example under clause 8.4 JCT Design and Build 2016, the employer can give the contractor a notice of default and if the contractor continues the default for 14 days from receipt of the notice, the employer may give a further notice to terminate the contract on or within 21 days of the expiry of the 14-day period. At what point, therefore, does the guarantor become liable for the default of the contractor? Is it at the point the default occurs, following receipt of the employer’s notice, at expiry of the 14-day period, or following receipt of a termination notice by the employer? The answer to this will not be clear unless the position is agreed and set out in the provisions of the PCG. 

As previously indicated, the rule of thumb is that the guarantor’s liability is the same and no greater than the liability of the guaranteed party under the underlying contract. Consequently, the guarantor will generally be able to rely on any defences, including any counter claims available to the building contractor in the underlying contract. While this is arguably fair and reasonable, it can create some difficulties in enforcement of the guarantee, especially if the employer or guarantor disagreed over the validity of the defences or counterclaims raised. Therefore, depending on your perspective, it may be prudent to contractually exclude or limit the ability of the guarantor to raise defences or counterclaims and/or to postpone the guarantor’s rights to raise such claims until after the guarantor has discharged its obligations under the PCG. But take care and, if necessary, obtain legal advice to ensure the provisions do not fall foul of the Unfair Contract Terms Act 1977.

4. Insolvency is not a breach of contract

The JCT Design and Build 2016 entitles the employer to terminate the building contract and recover for certain losses in the event the contractor goes insolvent. Insolvency is not, therefore, a breach of contract and as such express provisions needs to be included in the PCG to ensure the guarantor is obligated to guarantee the losses which an employer may sustain in these circumstances 

5. Understand how the PCG can be enforced

Given a guarantor’s liability under a guarantee is contingent on the underlying contract, any changes to that underlying contact can have the effect of releasing the guarantor from their obligations. This is particularly important in construction contracts, in which variations and instructions under the building contract are commonplace. Make the intent of the parties clear in the PCG, by ensuring it expressly allows for amendments, variations and instructions under the building contract without affecting the enforceability of the guarantee. 

Perhaps surprisingly, a guarantor is not necessarily liable to pay an amount awarded against a contractor by any judge or arbitrator ( Re Kitchin [1881] 17 ChD 668) and The Vasso [1979] 2Lloyd’s Rep 412) unless the guarantor is a party to those proceedings. The concern of the courts is that in circumstances where the guarantor is not party to proceedings, the contractor might neglect to defend or represent the guarantor’s interests properly or make admissions to which the guarantor does not agree to be bound. In Beck Interiors Limited -v- Dr Mario Luca Russo [2009] EWHC B32, the court confirmed the principle extended to adjudication decisions. 

This raises certain legal, practical and financial considerations for any person looking to enforce a PCG, since making a guarantor party to any proceedings before a PCG can be enforced is likely to increase the cost and complexity of those proceedings and, in the case of adjudication, may well not be possible in any event. These practical and procedural difficulties can be overcome by ensuring the PCG contains an express provision whereby the guarantor agrees to be bound, by any adjudication, arbitration or court decision, notwithstanding that it may not have been a party to the proceedings. Alternatively, the PCG could provide a conclusive evidence or ‘pay now, argue later’ clause which would require the guarantor to pay over sums in certain specified circumstances, subject to a right to disprove those sums are in fact owed. However, be aware the inclusion of these provisions is likely to be controversial, and care must be taken to ensure the enforceability of these clauses. As ever, if in doubt take legal advice.  

While the overall value of PCGs is perhaps more complex and limited than their name might suggest, their value should not be discounted. Guarantees are flexible tools that can accommodate the relative bargaining power and risks of the parties in any building transaction. As such, their value lies within the detail of the drafting and a good understanding of the circumstances and methods by which they can be called on.  

• Construction law

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Guarantees and indemnities: a quick guide

Practical law uk practice note overview 7-523-6570  (approx. 10 pages), get full access to this document with a free trial.

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• Guarantees - Land and Buildings
• Warranties, Indemnities and Transaction Issues
• General Contract and Boilerplate
• Building Contracts and Contractors
• General Commercial
• Mortgages and Security - Land and Buildings
• Construction and engineering contracts
• Corporate lending
• General contract and boilerplate
• Performance security