Negotiating Corporate Guarantees & Indemnities

• To identify the numerous common law rights that protect guarantors;
• To understand how those rights can be constrained by the drafting of the various clauses in the guarantee;
• To appreciate the errors that can be made and their potential consequences

Session 1 - A Review of the Law

• The operation of Common Law
  • Stare decisis – ratio decidendi vs obiter dictum
• Where law of guarantor’s jurisdiction can create complications
• Ultra vires
  • Companies incorporated under the UK Companies Act
  • All other signatories
• Commercial benefit – where is it still relevant?
• The rights of a guarantor
• The on-demand clause
  • Statute of limitations
  • Shortfall guarantees
• The limitations clause
• All-money guarantees
  • Potential for misrepresentation
  • The ejusdem generis rule
• Issues with upstream guarantees
• Significant differences between civil law and common law guarantees
  • Trigger clauses
  • Termination rights
  • Maturity date vs perpetual
• Differences between corporate guarantees and bank guarantees

Session 2 - The Guarantee - 1

• 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
• No prejudice clause

Session 3 - The Guarantee - 2

• Joint or joint-and-several
• Right of contribution
• Conclusive evidence clause
  • Burden of proof
• Difference between an indemnity and a guarantee
  • Collateral contracts
  • Principal obligation to reimburse
• For what circumstances do we need an indemnity and not a guarantee?
• The implications of the indemnity clause
• Survivorship clause
  • Necessity in actions under the Insolvency Acts
• Particular issues in litigating guarantees
• 4 Statute of Frauds Act
• Digital signatures

Session 4 - Letters of Comfort

• Reasons that a guarantee is not or cannot be provided
• Are they enforceable?
  • Consideration
  • Intention
• The tests that the law applies to determine contractual status
• Review of case precedents

The trainer has a unique blend of experience in Law, Corporate Banking, Investment Banking, Corporate Financial Management, General Management and Workout.  He has gained a worldwide reputation for the quality and depth of his training courses which have been developed and presented over 20+ years.

• He trained as a lawyer at Cambridge and the Middle Temple and was called to the English bar.
• 5 years with an American bank (Chase), the world’s largest financier of oil & gas projects, as a corporate relationship manager in New York and London. In the 5 years in this role he was exposed to the development of the North Sea projects and petrochemicals.
• 6 years: investment banking in Hong Kong and London (Wardley – the investment bank subsidiary of HSBC), primarily involved in mergers and acquisitions and corporate restructurings.
• 6 years: CFO of a public group with a joint head office in the United States and Australia. In this role he was engaged in some 35 acquisitions, over 20 equity raisings and a large number of complex financings, many of them structured on a limited recourse basis;
• 18 months: responsible for the ‘workout’ of a company in severe financial difficulties, being appointed as General Manager by KPMG.

For the past 20 years the trainer has acted as an independent consultant and financial trainer.  On the consulting side he has been primarily involved in the financial modelling and structuring of power generation, LNG, mining, and petrochemical projects, as well as undertaking project vetting for a number of clients.  On the training side he conducts training courses in Financial Modelling, Loan Documentation, Project Finance and Corporate Finance, Corporate Valuation and M&A.

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 those 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 a number of ‘voodoo’ words and phrases – words that have special legal meaning. 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.

Some comfort letters are enforceable as contracts, others are not. The documents by their nature are vague as to their contractual status, but we go through the method of determining their enforceability.