Guarantor rights and how to defer them in guarantee documentation—no competition clauses


Published by a ³ÉÈËÓ°Òô Banking & Finance expert
Practice notes
In-house

Guarantor rights and how to defer them in guarantee documentation—no competition clauses


Published by a ³ÉÈËÓ°Òô Banking & Finance expert

Practice notes
In-house
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Guarantees are a contractual arrangement where one party (the guarantor) agrees to answer for the liability of another party (the principal) to another party (the guaranteed party).

Guarantors have various rights usually conferred in Equity against the principal, the guaranteed party and any co-guarantors. Such rights can prejudice a lender's position and it is common practice for lenders to seek to defer these rights in guarantee documentation.

This Practice Note summarises the key rights of guarantors that arise as a matter of law and how they are dealt with in guarantee documentation.

In most typical finance transactions:

  1. •

    the guaranteed party will be the lender or the Security agent, and

  2. •

    the principal will be:

    1. â—¦

      the borrower, or

    2. â—¦

      another company in the borrower's group—for example in a group borrowing structure or a cross-guarantee structure where each guarantor guarantees the obligations of the borrower and each other guarantor

For information on guarantees in general, see Practice Note: Guarantees.

This Practice Note does

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Jurisdiction(s):
United Kingdom
Key definition:
Equity definition
What does Equity mean?

Capital that is used to finance companies in the form of ordinary share capital as opposed to debt finance. The term is also sometimes used to describe preference shares or subordinated loan capital contributed by equity investors (commonly known as quasi-equity) to distinguish it from third party debt.

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