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.
Under single contract or multiple contracts?
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.
 If you are unsure, you should consider taking appropriate professional advice.  Currency indemnities are often included where amounts, claims and awards in relation to agreements may need to be made in different currencies.  Where parties are based in different jurisdictions, notice provisions will need to work in each jurisdiction.  Consider whether you need the flexibility to bring proceedings in different jurisdictions.  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.  If you are unsure of your tax position, you should consider taking appropriate professional tax advice.  Currency indemnities are often included where amounts, claims and awards in relation to agreements may need to be made in different currencies.  Where parties are based in different jurisdictions, appropriate notice provisions should be considered.  Bear in mind that the cost/complexity of defending proceedings in different jurisdictions may vary.