Bite Size: Corporate Guarantees & Indemnities

• To identify the numerous common law rights that protect guarantors in corporate bank guarantee
• To understand how those rights can be constrained by the drafting of the various clauses in the corporate guarantee agreement

• Difference between an indemnity and a guarantee
  • collateral contracts;
  • principal obligation to reimburse.
• The on-demand clause and types of corporate guarantee
  • statute of limitations;
  • shortfall guarantees;
• The limitations clause
• All-money guarantees
  • potential for misrepresentation,
  • the ejusdem generisrule
• Issues with upstream guarantees
• Significant differences between law of guarantees: civil law and common law guarantees
  • trigger clauses,
  • termination rights,
  • maturity date vs. perpetual
• The variations clause
• The in-addition-to clause
  • potential for ambiguity;
• ‘Continuing security’
  • The rule in Clayton’s Case,
  • Appropriations law;
• Termination rights and consequences
  • guarantor’s right to terminate;
  • ruling off;
  • crystallisation of liability;
• Set-off
  • Common law position,
  • Pro-rata,
  • Beneficial interests.
• Right of subrogation
  • full vs partial,
  • implications in insolvency.
• No competition clause
• Joint or joint-and-several
• Right of contribution
• Conclusive evidence clause
  • burden of proof
• For what circumstances do we need an indemnity bond and not a guarantee letter
• Survivorship clause
  • necessity in actions under the Insolvency Acts
• Particular issues in litigating guarantees
• 4 Statute of Frauds Act

The trainer has an unusually diverse career background, which allows the subject-matter of the course to be presented effectively and with insight from a variety of perspectives.  He initially qualified in the UK as a barrister, but transitioned into banking (relationship management) in New York and London for a period of 5 years.  This was followed by 6 years in merchant banking, primarily in mergers & acquisitions in Hong Kong and London.  A further 6 years as CFO of a large listed company with a joint head office in Los Angeles and in Australia gave him a deep level of exposure to project financings, which then continued into his subsequent career in both workout (appointed by KPMG as General Manager of a company in severe financial difficulties), and as an independent consultant.

A guarantor is the darling of the courts. Over the years, the case precedents to which courts adhere have favoured guarantors over lenders.  The consequence is that there are many ways for guarantors to evade liability.  Because we know what those precedents are, the bulk of a typical corporate guarantee is to remove that common law rights one-by-one.

The course carefully goes through each clause, explains the problem that we need to address, and identifies how the clause achieves its objective.

Additionally, guarantees have many ‘voodoo’ words and phrases – words that have special legal meanings.  Altering those words or phrases could inadvertently alter the legal effect of the document.  We take special care to identify them and the potential risks.