The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:
Once the capacity and authority of a company to enter into a guarantee have been investigated, the next step is to consider the commercial (or corporate) benefit of entering into the guarantee.
Issues of commercial benefit can be of particular concern in finance transactions which include a guarantee because the company providing the guarantee is often in the position of taking on a considerable contingent financial liability for the obligations of a third party (typically the principal debtor of the lender—see Practice Note: Guarantees—Whose obligations are guaranteed?). On the face of it, providing such a guarantee would appear not to be in the commercial interests of the guarantor. See the Q&A: In what circumstances do I really need to worry about commercial (or corporate) benefit?
This Practice Note considers the issues that arise in relation to commercial benefit when a company provides a corporate guarantee. In particular it covers:
the duty of directors to promote the success of the company and commercial benefit
issues surrounding intra-group guarantees
insolvency issues including how commercial benefit is relevant to transactions at an undervalue
what happens if there is no commercial benefit
issues for directors to consider when evaluating commercial benefit, and
issues for lenders to consider for transactions which include a guarantee
Under the provisions of the Companies
**Trials are provided to all LexisPSL and LexisLibrary content, excluding Practice Compliance, Practice Management and Risk and Compliance, subscription packages are tailored to your specific needs. To discuss trialling these LexisPSL services please email customer service via our online form. Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.
To view the latest version of this document and thousands of others like it, sign-in to LexisPSL or register for a free trial.
Existing user? Sign-in
Take a free trial
0330 161 1234
To view our latest legal guidance content,sign-in to Lexis®PSL or register for a free trial.