A parent undertaking is a type of undertaking in relation to another undertaking called a subsidiary undertaking.

A promise by another company, usually the holding company, to take responsibility for any shortfall in the pension fund if the sponsor employer fails.

A contract between a parent company and a beneficiary, by which the parent guarantees its subsidiary's performance under a separate contract between the subsidiary and the beneficiary (eg a building contract). In the event of the subsidiary failing to perform its obligations under its contract with the beneficiary, the parent company may be required to perform its obligations in its place or reimburse the beneficiary for losses suffered as a result of the subsidiary’s failure to perform. See subtopic: Parent company guarantees in construction projects.

This Guarantee is made the [insert date] day of [insert month] 20[insert year] Parties 1 [insert name] (Company No. [insert number]) [of OR whose registered office is at] [insert address] (the ‘Guarantor’). 2 [insert name] (Company No. [insert number]) [of OR whose registered office is at] [insert address] (together with its successors and assigns, the ‘Contractor’). Background (A) By a contract dated [insert date] (the ‘Contract’) and made between (1) [insert name] (the ‘Employer’) and (2) the Contractor, the Contractor has agreed to execute and complete certain works (‘the Works’) upon the terms and conditions contained in the Contract. (B) The Employer has agreed to procure the provision of a guarantee in the terms hereof (the ‘Guarantee’). The Employer is a wholly owned subsidiary of the Guarantor. (C) The Guarantor has agreed to guarantee the Employer’s

In the construction industry, parent company guarantees (PCGs) are commonly given to the employer by the main contractor’s holding company to guarantee the performance of the contract by the subsidiary main contractor. This is a requirement in almost every construction contract where the contractor has a parent. Most frequently, contractors are required to provide a PCG, executed by their parent, at the time of contract signing. Recourse against the parent under the guarantee will thereby be available to the employer if the contractor defaults. PCGs are found in certain other situations in construction. Occasionally, in some bespoke construction contracts, the guarantor will be a party to the contract itself, but only for the purpose of providing the guarantee. Sometimes collateral warranties are required to be given by contractors to lenders that contain PCG provisions but these are typically resisted. Also, guarantees may sometimes be given to contractors (or subcontractors) by, for example, a developer’s holding company: this is done to secure payments due under the contract. In a similar way, parent companies sometimes agree

Risk to a parent company of giving a PCG A parent or holding company does not normally carry out trading activities itself but owns assets, including shares in other companies and the retained profits which they earn. It also provides strategic management services to the group. Commercial organisations use this structure chiefly because it reduces risk. Corporate assets, transferred to a holding company, are insulated from risks associated with contracting activities. Trading profits can be sheltered from exposure to losses and liabilities affecting the subsidiary company. There are also tax advantages in that losses taken by one subsidiary are available to be used to be offset against profits taken elsewhere in the group. As corporate groups grow, the structure expands with several levels of parents up to an ultimate holding company controlling all the companies beneath it. This creates a buffer between the assets held in the holding company owned, by the group’s investors, and the risk-taking subsidiary companies which generate the groups profits. For a parent company to guarantee the liability

This Checklist sets out the key issues and provisions to consider when considering a parent company guarantee in a general, business-to-business (B2B) commercial transaction. A traditional ‘see to it’ guarantee: • is a promise by the guarantor to the beneficiary that a third party (the primary obligor) will perform an obligation and/or, if the third party does not perform, the guarantor will perform it or procure its performance • creates a secondary obligation (ie an obligation dependent on the primary obligor’s obligation), and • can never exceed the obligation of the primary obligor in the absence of wording to the contrary (ie if the primary obligor’s obligation falls away for any reason (eg illegality), the guarantor’s liability falls away too) A parent company guarantee (PCG) is a guarantee given by one contracting party's ultimate or intermediate holding company in favour of the other contracting party to secure the performance of that party's obligations under the contract. PCGs are often sought from a customer in respect of the performance obligations of a supplier, but may equally

This Deed (Guarantee) is made on [date] Parties 1 [insert name of supplier’s parent company] a company incorporated in [England and Wales] whose registered number is [insert company number] and whose registered office is at [insert registered office] (Guarantor); and 2 [insert name of customer] a company incorporated in [England and Wales] whose registered number is [insert company number] and whose registered office is at [insert registered office] (Customer) each of the Guarantor and the Customer being a party and, together, the parties. Background (A) The Customer and [insert full supplier company name] (the Supplier) have entered into an agreement for [insert description] dated [insert date of the underlying agreement] (the Agreement). (B) A condition [precedent] of the Agreement is that the Supplier procures the execution and delivery by the Guarantor of a guarantee [substantially] in the form of this Guarantee. (C) The Guarantor guarantees the Supplier's due performance under the Agreement on the terms and conditions of this Guarantee, which the parties intend shall be executed as a deed. The parties agree: 1 Interpretation 1.1 Unless otherwise provided in this Guarantee, the rules of interpretation set out in the Agreement

This checklist sets out the key issues to consider when reviewing a PCG on behalf of a contractor who is being asked to provide a PCG. The terms 'contractor' and 'employer' are used but the principles apply equally to an arrangement between a contractor and a sub-contractor or between an employer/contractor and a consultant. PCGs are often bespoke documents and the particular circumstances must be considered when reviewing a PCG. For a more detailed consideration of these issues, see Practice Note: Parent company guarantees (PCGs) in construction—drafting and negotiation issues. • Is the contractor required to give a PCG under the Building Contract? If not, there is no obligation on the contractor to provide a PCG. However, the contractor may agree to provide one to give the employer comfort and to establish/maintain a good relationship with the employer. • Does the contractor’s internal policy permit the giving of PCGs? Is approval needed? A lot of companies would rather give a PCG than a performance bond but this is not always the case and some companies may resist

This Guarantee is made the [insert date] day of [insert month] 20[insert year] Parties 1 [insert name of Guarantor] (Company No. [insert company number]) [of OR whose registered office is at] [insert address] (the ‘Guarantor’ which expression shall include its successors in title and permitted assigns); and 2 [insert name of Employer] (Company No. [insert company number]) [of OR whose registered office is at] [insert address] (the ‘Employer’ which expression shall include its successors in title and permitted assigns). Background (A) By an agreement in writing (the ‘Contract’) dated [insert date] made between (1) the Employer and (2) [insert name of Contractor] Company (No. [insert company number]) (the ‘Contractor’) the Contractor has agreed to [design

This Checklist sets out the key issues to consider when drafting, reviewing or negotiating a parent company guarantee (PCG) on behalf of an employer who is to be provided with a PCG. The terms 'contractor' and 'employer' are used but the principles apply equally to an arrangement between a contractor and a sub-contractor or between an employer/contractor and a consultant. PCGs are often bespoke documents and the particular circumstances must always be taken into consideration. • Is the contractor required to give a PCG under the building contract? If not, there is no obligation on the contractor to provide a PCG and whether it will provide one will be a matter for negotiation. The contractor may agree to provide one anyway, to give the employer comfort regarding its solvency and its commitment to the project, and to establish/maintain a good relationship with the employer. The employer should also check what the specific timing requirements are for when the contractor is required to provide the PCG—eg on the date of signing the building contract, within a specific period after

This Guarantee is made the [insert number] day of [insert month] 20[insert year] Parties 1 [insert name] (Company No. [insert number]) of/whose registered office is at [insert address] (the ‘Guarantor’); and 2 [insert name] (Company No. [insert number]) of/whose registered office is at [insert address] (together with its successors and assigns, the ‘Employer’). Background (A) By a contract dated [insert date] (‘the Contract’) and made between (1) the Employer and (2) [insert name] (‘the Contractor’), the Contractor has agreed to execute and complete certain works (‘the Works’) upon the terms and conditions contained in the Contract. (B) Pursuant to the terms of the Contract, the Contractor has agreed to procure the provision of a guarantee in the terms hereof (the ‘Guarantee’). The Contractor is a wholly owned subsidiary of the Guarantor. (C) At the request of the Contractor, the Guarantor has agreed to guarantee performance of the Contract by the Contractor. It is hereby agreed as follows: 1 In consideration of the Employer entering into the Contract with the Contractor, the Guarantor irrevocably and unconditionally guarantees to the Employer as a primary obligation and not