assignment parent company guarantee

Parent Guarantee Agreement: Definition, Terms, Example

Jump to section, what is a parent guarantee agreement.

A parent guarantee agreement is a contract between a parent company and a client that ensures certain performance requirements are met. The contract specifically states what type of performance requirements are expected, when they must be achieved by, and what consequences will result if the deadline is missed. It also contains vital details regarding what rules and regulations both contract parties must follow for the duration of the agreement.

The purpose of the parent guarantee agreement is to form a legal relationship between a parent company and client that wish to work together without risking their legal rights.

Common Sections in Parent Guarantee Agreements

Below is a list of common sections included in Parent Guarantee Agreements. These sections are linked to the below sample agreement for you to explore.

Parent Guarantee Agreement Sample

Exhibit 10.4

PARENT GUARANTEE

PARENT GUARANTEE, dated as of November 9, 2004, made by VCG Holding Corp. (the “ Guarantor ”), in favor of the lenders holding (the “ Lenders ”) those certain 12% Senior Subordinated Notes of Glenarm Restaurant LLC (“ Subsidiary ”) due in November, 2006. As there is only one Guarantee, references in this Guarantee that reference multiple Guarantees shall be disregarded.

W I T N E S S E T H:

Whereas, the Subsidiary has agreed to sell and issue to the Lenders, and the Lenders have agreed to purchase from the Subsidiary the Subsidiary’s 12% Senior Subordinated Notes due in November 2006 (the “ Notes ”), subject to the terms and conditions set forth therein; and

NOW, THEREFORE, in consideration of the premises and to induce the Lenders to enter into the Subscription Agreement and to carry out the transactions contemplated thereby, each Guarantor hereby agrees with the Lenders as follows:

SECTION 1. DEFINED TERMS

1.1 DEFINITIONS

(a) Unless otherwise defined herein, terms defined in the subscription agreements pursuant to which the Lenders purchased the Notes (the “ Subscription Agreements ”).

(b) The following terms shall have the following meanings:

“ GUARANTEE ”: this Parent Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.

“ OBLIGATIONS ”: the collective reference to all obligations and undertakings of the Subsidiary of whatever nature, monetary or otherwise, under the Notes, the Subscription Agreement, the Security Agreement , the Warrants, the AIRs, the securities underlying the AIRs or any other future agreement (collectively, the “ Transaction Documents ”) or obligations undertaken by the Subsidiary to the Lenders, together with all reasonable attorneys’ fees, disbursements and all other costs and expenses of collection incurred by Lenders in enforcing any of such Obligations and/or this Guarantee.

1.2 OTHER DEFINITIONAL PROVISIONS. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The

meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

SECTION 2. GUARANTEE

2.1 GUARANTEE

(a) The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Subsidiary when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(b) Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2.2).

(c) Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Lenders hereunder.

(d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full.

(e) No payment made by the Subsidiary, any of the Guarantors, any other guarantor or any other Person or received or collected by the Lenders from the Subsidiary, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are paid in full.

(f) Notwithstanding anything to the contrary in this Agreement, with respect to any defaulted non-monetary Obligations the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Subsidiary’s Common Stock ), the Guarantors shall only be liable for making the

Lenders whole on a monetary basis for the Subsidiary’s failure to perform such Obligations in accordance with the Transaction Documents.

2.2 RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Lenders, and each Guarantor shall remain liable to the Lenders for the full amount guaranteed by such Guarantor hereunder.

2.3 NO SUBROGATION. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Lenders, no Guarantor shall be entitled to be subrogated to any of the rights of the Lenders against the Subsidiary or any other Guarantor or any collateral security or guarantee or right of offset held by the Lenders for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Subsidiary or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Lenders by the Subsidiary on account of the Obligations are paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Lenders in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Lenders, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Lenders may determine.

2.4 AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by the Lenders may be rescinded by the Lenders and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Lenders, and the Subscription Agreement and the other Transaction Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lenders may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Lenders for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Lenders shall have no obligation to protect, secure, perfect or insure any Lien at any time held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.

2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Lenders upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Subsidiary and any of the Guarantors, on the one hand, and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Subsidiary or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Subscription Agreement or any other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Lenders, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or fraud or misconduct by Lenders) which may at any time be available to or be asserted by the Subsidiary or any other Person against the Lenders, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Subsidiary or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Subsidiary for the Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Lenders may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as they may have against the Subsidiary, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Lenders to make any such demand, to pursue such other rights or remedies or to collect any payments from the Subsidiary, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Subsidiary, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Lenders against any Guarantor. For the purposes hereof, “demand” shall include the commencement and continuance of any legal proceedings.

2.6 REINSTATEMENT. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Lenders upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Subsidiary or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for,

the Subsidiary or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

2.7 PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will be paid to the Lenders without set-off or counterclaim in U.S. dollars at the address set forth or referred to in the Subscription Agreement.

SECTION 3. REPRESENTATIONS AND WARRANTIES

Each Guarantor hereby makes the following representations and warranties to Lenders as of the date hereof:

3.1 ORGANIZATION AND QUALIFICATION. The Guarantor is a corporation, duly incorporated, validly existing and in good standing under the laws of the applicable jurisdiction set forth on Schedule 1, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Guarantor has no subsidiaries other than those identified as such on the Disclosure Schedules to the Subscription Agreement. The Guarantor is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Guaranty in any material respect, (y) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Guarantor or (z) adversely impair in any material respect the Guarantor’s ability to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse Effect”).

3.2 AUTHORIZATION; ENFORCEMENT. The Guarantor has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Guaranty, and otherwise to carry out its obligations hereunder. The execution and delivery of this Guaranty by the Guarantor and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Guarantor. This Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

3.3 NO CONFLICTS. The execution, delivery and performance of this Guaranty by the Guarantor and the consummation by the Guarantor of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation or By-laws or (ii) conflict with, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or

instrument to which the Guarantor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Guarantor is subject (including Federal and state securities laws and regulations), or by which any material property or asset of the Guarantor is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Guarantor is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, do not have a Material Adverse Effect.

3.4 CONSENTS AND APPROVALS. The Guarantor is not required to obtain any consent, waiver , authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the execution, delivery and performance by the Guarantor of this Guaranty.

3.5 SUBSCRIPTION AGREEMENT. The representations and warranties of the Subsidiary set forth in the Subscription Agreement as they relate to such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to be made pursuant to such Subscription Agreement, and the Lenders shall be entitled to rely on each of them as if they were fully set forth herein, PROVIDED that each reference in each such representation and warranty to the Subsidiary’s knowledge shall, for the purposes of this Section 3, be deemed to be a reference to such Guarantor’s knowledge.

3.6 FOREIGN LAW. Each Guarantor has consulted with appropriate foreign legal counsel with respect to any of the above representations for which non-U.S. law is applicable. Such foreign counsel have advised each applicable Guarantor that such counsel knows of no reason why any of the above representations would not be true and accurate. Such foreign counsel were provided with copies of this Parent Guarantee and the Transaction Documents prior to rendering their advice.

SECTION 4. COVENANTS

Each Guarantor covenants and agrees with the Lenders that, from and after the date of this Guarantee until the Obligations shall have been paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor.

SECTION 5. MISCELLANEOUS

5.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except in writing by the Lenders.

5.2 NOTICES. All notices, requests and demands to or upon the Lenders or any Guarantor hereunder shall be effected in the manner provided for in the Subscription Agreement; PROVIDED that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on SCHEDULE 5.2.

5.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. The Lenders shall not by any act (except by a written instrument pursuant to Section 5.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Lenders, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Lenders of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lenders would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

5.4 ENFORCEMENT EXPENSES; INDEMNIFICATION.

(a) Each Guarantor agrees to pay, or reimburse the Lenders for, all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to the Lenders.

(b) Each Guarantor agrees to pay, and to save the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Guarantee.

(c) Each Guarantor agrees to pay, and to save the Lenders harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with

respect to the execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Subsidiary would be required to do so pursuant to the Subscription Agreement.

(d) The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Subscription Agreement and the other Transaction Documents.

5.5 SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Lenders and their respective successors and assigns; PROVIDED that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Lenders.

5.6 SET-OFF. Each Guarantor hereby irrevocably authorizes the Lenders at any time and from time to time while an Event of Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lenders to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Lenders may elect, against and on account of the obligations and liabilities of such Guarantor to the Lenders hereunder and claims of every nature and description of the Lenders against such Guarantor, in any currency, whether arising hereunder, under the Subscription Agreement, any other Transaction Document or otherwise, as the Lenders may elect, whether or not the Lenders have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Lenders shall notify such Guarantor promptly of any such set-off and the application made by the Lenders of the proceeds thereof, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lenders under this Section are in addition to other rights and remedies(including, without limitation, other rights of set-off) which the Lenders may have.

5.7 COUNTERPARTS. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

5.8 SEVERABILITY. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

5.9 SECTION HEADINGS. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

5.10 INTEGRATION. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Lenders relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.

5.11 GOVERNING LAW . THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAWS.

5.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Guarantor hereby irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Guarantee and the other Transaction Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, located in New York County, New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Guarantor at its address referred to in the Subscription Agreement or at such other address of which the Lenders shall have been notified pursuant thereto;

(d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

5.13 ACKNOWLEDGEMENTS. Each Guarantor hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction Documents to which it is a party;

(b) the Lenders have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c) no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Guarantors and the Lenders.

5.14 RELEASE OF GUARANTORS. Subject to Section 2.6, each Guarantor will be released from all liability hereunder concurrently with the repayment in full of all amounts owed under the Subscription Agreement, the Notes and the other Transaction Documents.

5.15 SENIORITY. The Obligations of each of the Guarantors hereunder rank senior in priority to any other unsecured Debt (as defined in the Notes) of such Guarantor.

5.16 WAIVER OF JURY TRIAL. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE LENDERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.

Reference : Security Exchange Commission - Edgar Database, EX-10.4 5 dex104.htm PARENT GUARANTEE AGREEMENT , Viewed March 7, 2023, View Source on SEC .

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Christopher M. Lapinig is an experienced attorney, admitted to practice in California and New York, with extensive experience in civil litigation at the trial and appellate levels in various areas of the law, including, but not limited to, constitutional law, labor and employment, and consumer protection. He also has experience in immigration law and with administrative wage-and-hour claims. Chris currently works in impact litigation, and he also teaches legal writing at the University of Southern California. Chris also has significant experience in journalism and lay writing; his work has been published in The New York Times, The Atlantic, CNN, and other prominent media outlets. Born and raised in Queens, New York, Chris previously served as a Deputy Attorney General in the Consumer Protection Section at the California Department of Justice. He also served as a Skadden Fellow and Staff Attorney in the Impact Litigation Unit at Asian Americans Advancing Justice – Los Angeles, where his work focused on providing holistic and culturally sensitive legal services to victims and survivors of human trafficking in the Filipino community. At Advancing Justice-LA, Chris also litigated voting rights and immigrant rights cases. At the beginning of his legal career, Chris served as a law clerk to the Honorable Denny Chin of United States Court of Appeals for the Second Circuit and was the first Filipino American Clerk for the Honorable Lorna G. Schofield of United States District Court for the Southern District of New York, the first federal Article III judge of Filipino descent in United States history. Chris was also a Fulbright Research Scholar in the Philippines. A Phi Beta Kappa member, Chris graduated summa cum laude from Yale College and earned a B.A. with Distinction in Linguistics and with Distinction in Ethnicity, Race and Migration. In college, Chris served as President of Kasama: The Filipino Club at Yale, Moderator of the Asian American Students Alliance, and Head Coordinator of the Asian American Cultural Center. Chris returned to Yale for law school and received his J.D. in 2013. In law school, Chris served as the Co-Chair of the Asian Pacific American Law Students Association, the Co-Coordinator of the Critical Race Theory Conference, the inaugural Diversity Editor of the Yale Law Journal, and the Founding Coordinator of the Alliance for Diversity. He was a member of the Worker and Immigrant Rights’ Advocacy Clinic.

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Intra-group Assignments – What can a landlord expect from a parent company guarantor?

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It is not unusual or unreasonable for businesses holding large assets, such as long term leases, to require flexibility to reallocate assets during a lease term within the company group. 

However, since the decisions in Good Harvest v Centaur and K/S Victoria v House of Fraser there has been a question over the extent to which parent guarantees can be provided on an assignment if the parent company is already acting as a guarantor of the existing tenant.

The recent decision in Tindall Cobham 1 Limited v Adda Hotels has gone some way to clarify this.

In this case, the Tindall companies, part of the Hilton Group, were the tenant of a portfolio of hotels owned by Adda.  Their obligations under the lease were guaranteed by the Hilton parent company.

Not only did their leases contain the usual restrictions on assignment without landlord’s consent, acting reasonably, but a further clause permitted intra-group assignments without landlord’s consent provided that:

• notice was given to the landlord of the assignment; and
• the “G uarantor and any other guarantor of the Tenant ” guaranteed the incoming tenant’s performance of the obligations.

Following the decision in K/S Victoria v House of Fraser that a requirement for a repeat guarantee was void under the Landlord and Tenant (Covenants) Act 1995, Tindall decided these additional provisos were invalid and so proceeded to assign the leases without consent.

Needless to say Adda, when faced with the loss of a valuable guarantor and a tenant of no value, which it would not have consented to under normal circumstances, disputed this interpretation claiming that the tenant was in breach of its covenants.

On appeal, whilst Tindall had by then conceded that landlord’s consent to the assignments was required, it maintained the landlord had to consent in accordance with the subsequent intra-group provisos.  As the requirement for repeat guarantee was void under the Landlord and Tenant (Covenants) Act 1995, the parent company was therefore off the hook.

In considering the extent to which the invalid intra-group proviso should be severed the Court of Appeal applied a common sense approach to ensure a commercial solution.  It held that both requirements should be disregarded and so the lease provision in respect of intra-company assignments fell away entirely.  This meant the tenant continued to have a degree of flexibility to transfer the leases to other intra-group company albeit with landlord’s consent and the landlord had the opportunity to seek a different guarantor or to refuse consent if it was not satisfied with the covenant strength offered so protecting its assets.

Whilst this case has provided us with an insight into how the Court will look at these obligations, it should be noted that the outcome did turn on the interpretation of the wording of the lease.  A different case may lead to a different outcome. 

It is clear that the question surrounding repeat guarantees will continue to be a concern for landlords and tenants alike. Tenants, wishing to reorganise their business, may well find themselves in a difficult position if unable to provide an equivalent guarantee or suitable alternative, whilst landlords, wishing to protect their assets, will need to ensure they are fully aware of the circumstances to any proposed intra-group assignment.  Both parties should consider other options.  For example, an existing parent company guarantor could continue to act as guarantor for the existing tenant under the authorised guarantee agreement it will be providing on the assignment of the lease or a rent deposit from the incoming tenant may be a sufficient substitute.  

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Back to Basics - Guarantees and Bonds

Tarfa ahmad.

Principal Associate

Philip Baker

In this article we look at two of the ways in which an employer will try to deal with the risk of contractor default or insolvency on construction projects - performance guarantees (sometimes referred to as performance bonds or guarantee bonds) and parent company guarantees.

What is a performance guarantee or bond?

In the construction industry, a performance guarantee is usually provided by a bank, insurer or other financial institution who guarantees that it will pay the employer (up to a capped sum) for the losses incurred as a result of the contractor being in breach of its obligations under the building contract.

While the terms tend to be used interchangeably, in a construction context a bond does in fact differ from a guarantee, as it does not require the employer to establish a breach under the building contract, whereas this is required under a guarantee.

In contrast, the bondsman has an independent obligation to pay out pursuant to the bond, following a written demand by the beneficiary. For obvious reasons, these "on demand" bonds are less frequently available and more costly than guarantees. They will also usually stipulate strict requirements for notifying the guarantor of a claim.

What are the main provisions of a performance guarantee?

The principal obligation - The guarantor guarantees that, in the event of the contractor's breach of contract, it will satisfy and discharge the damages sustained by the employer. Employers will usually require that this provision specifically covers the contractor's insolvency.

Maximum liability - This is usually 10% of the contract sum but may be more or less. For a project which will run for a particularly long period of time, the amount may reduce as the project progresses. The guarantee will usually also say that the guarantor's liability is co-extensive with that of the contractor, and therefore it will have no greater liability than the contractor would have had under the building contract.

Expiry - The guarantor's liability will usually expire at practical completion of the project or at the end of the rectification period. A longer period of cover is likely to increase the cost of the bond.

Assignment - Employers will want to make sure that the guarantee is assignable to any person to whom the building contract is assignable. In some cases, this right to assign will be subject to the consent of the guarantor.

Variations to the underlying contract - It is important that variations to the building contract do not impact upon or reduce the guarantor's liability under the guarantee.

How is this different to a parent company guarantee?

A parent company guarantee is given by the contractor's parent or other connected or group company and guarantees the performance of the contractor's obligations under the building contract.

Parent company guarantees vary significantly but commonly include satisfying the employer's claim for damages, warranting to carry out the contractor's obligations in place of the contractor itself or indemnifying the employer for any losses incurred as a result of the contractor's non-performance.

A parent company guarantee should last for the duration of the building contract (i.e. 12 years if executed as a deed, six years if executed as a simple contract). There is usually no cap on liability but the guarantor will have no greater liability than the contractor would have had under the building contract. As a result, the guarantor is liable to the employer in the same way, and for the same period of time as the contractor would have been under the building contract.

Which is best for my project?

Whether the employer requires a performance guarantee or parent company guarantee (or both) will need to be assessed on a project by project basis, considering the nature and value of the works and the financial standing of the contractor. However, the starting point should be that they are entirely separate forms of security.

An advantage to having a performance guarantee is that it gives the employer a cash sum from an independent third party which may assist in dealing with short term losses incurred as a result of having to find a replacement contractor.

However, the reality is that the guarantee (unless it is on demand) will often include a requirement (as is the case with the guarantee bond produced by the Association of British Insurers) for the damages to be established and ascertained pursuant to the building contract. This is likely to require formal proceedings against the contractor before any sums can be recovered from the guarantor. Accordingly, the sums may only be available at a much later stage and the employer may be out of pocket for some time.

As a parent company guarantee tends to have the same limitation period as the underlying building contract, it may be called upon in relation to defects which arise at a much later stage whereas a performance guarantee is likely to expire once the project is complete.

Significantly, a parent company guarantee is, in most cases, supplied at no cost to the employer. However, if a contractor is suffering financial difficulties, the parent or group company may also be affected, leaving the guarantee worthless. The financial standing of a parent company will therefore need to be considered.

As with a performance guarantee, a parent company may also require the losses to be formally ascertained before any sums can be recovered from the guarantor, unless the parties have agreed otherwise.

More practical tips...

• As contractor, it is best to deal with procuring guarantees as early on as possible in the project as an employer may insert wording into their building contract permitting them to retain a percentage of all payments to be made to the contractor (or allowing them to make no payment at all) until the relevant guarantees have been delivered.
• Contractors should be aware of any required forms of guarantee that are included in the tender documents and bear this in mind when approaching prospective guarantors who may have their own form of guarantee. The court has previously ordered a contractor to make payment of the bond amount into court when a suitable bondsman could not be found ( Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2014] ).
• In most cases, guarantors are likely to require various counter guarantees and possibly indemnities from contractors and the terms of any such documents need to be carefully checked.
• As an alternative approach to guarantees, an employer may propose withholding a percentage of payments throughout the course of the project as a retention. However, both parties should consider the potential risk to the contractor's cash flow and any resultant negative impact on its ability to carry out the works.

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Parent Company Guarantee: Everything You Need to Know

A parent company guarantee is a set of expectations that must be adhered to when a contractor or subsidiary company enter into contracts with a client. 3 min read

A parent company guarantee is a set of expectations that must be adhered to when a contractor or subsidiary company enter into contracts with a client.

Parent Company Guarantee

A parent company guarantee is a promise that a company will meet the performance requirement that their clients expect. These come into play when a contractor or subsidiary enter into a contract with clients. The expectations outlined in this guarantee are detailed by the parent company. The document that outlines a parent company guarantee should clearly state that the parent company is only held liable if the contractor or subsidiary company is in breach of the contract and fails to correct the breach in question.

Should this occur, the parent company's liability to the client will not be greater than that of the contractor or subsidiary company . A parent company guarantee, or PCG, is a promise given by a contracting party's holding company. This is done in favor of the other party involved in the contract as a measure to guarantee the expected performance of contractual obligations.

The terms of an agreement might have limited value associated with them if the party you are entering into a contract with does not have the necessary resources or assets to back up the commitments they have made. Sales subsidiaries of suppliers might be potentially risky in terms of contracts and purchases if they don't possess the necessary resources or assets on their own. A parent company is generally not held liable for the sales of their contractors or subsidiary companies unless they specifically agree to take on the liability. The exception to this is in tort liability scenarios.

Even if both the subsidiary and the supplier sign your contract, the supplier is not normally held liable for the subsidiaries actions or purchases made through them unless the contract specifically states that there is a joint liability. In cases such as this, both parties are generally held liable.

There are multiple reasons that a parent company might choose to incorporate what is known as a "Buyer's Purchase" from a subsidiary company. Some of these reasons are:

• Avoiding liability on sales
• Conducting business directly in certain areas
• Avoiding the need to be registered in those areas
• Protecting prices and profits as a form of purchase through subsidiaries

A parent company might also want to avoid being held liable for their subsidiary companies because not every subsidiary is completely owned by the parent company. They also may wish to be held responsible for any promises that a subsidiary company makes in their contractual agreements.

When Would a Parent Company Guarantee Be Used?

In a construction setting , a parent company will normally offer a guarantee as a measure to bolster their subsidiary companies' financial credibility. In the event that one of the parent company's subsidiaries enters into a contract with a third party, the other entity involved may have an interest in ensuring that the contract is properly carried out. In cases such as this, they will look to other companies in the group to offer performance and financial guarantees to support these expectations.

A parent company guarantee offers a measure of comfort regarding the obligations that the subsidiary company in question is expected to meet. Parent company guarantees are common among employers because they provide a level of protection if the contractor should default on their contractual obligations. Protection of this nature can cover the employer in the event that the contractor in question is in breach of their contract. In many cases, this takes place on the contractor's insolvency.

Parent company guarantees in a construction setting are commonly offered by the holding company of the contractor. They will normally favor the employer as a means of guaranteeing certain performance obligations of the contract. Parent company guarantees are also commonly used by contractors as a means of protection should a subcontractor default on their obligations. Contractors may also ask for a parent company guarantee from employers when they are concerned about their employer's ability to pay wages. This might be a case in which the employer is an SPV that was set up by a larger holding company for a specific project.

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Parent company guarantee

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A parent company guarantee is a type of financial guarantee that is typically used in business transactions. It is a guarantee from the parent company to the lender that the debt will be repaid if the borrower defaults. This type of guarantee can provide more security for the lender and may help to get better loan terms.

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What Is a Parent Company Guarantee Clause?

A parent company guarantee clause is a contractual agreement where a parent company assumes responsibility for the debts and obligations of its subsidiary or affiliate. This commitment provides financial security and enhances the creditworthiness of the subsidiary, allowing it to secure financing and establish trust with customers, suppliers, and investors. The guarantee can be upstream or downstream, and its necessity arises when subsidiaries lack sufficient creditworthiness or regulatory requirements mandate assurances. Key components of a guarantee clause include the warranty scope, amount, duration, and conditions, as well as a dispute resolution mechanism. Understanding the intricacies of a parent company guarantee clause is crucial for navigating complex corporate finance and risk management strategies.

Table of Contents

What Is a Parent Company Guarantee?

A parent company pledge is a contractual agreement where a parent company assumes responsibility for the debts and obligations of its subsidiary or affiliate, providing creditors with additional assurance of repayment. This commitment is a fundamental aspect of a corporate structure, as it provides financial security for the subsidiary or affiliate, thereby enhancing its creditworthiness. By assuming responsibility, the parent company provides an added layer of protection for creditors, increasing their confidence in the subsidiary's ability to meet its financial obligations.

In essence, a parent company promise is a contractual commitment that reinforces the financial security of the subsidiary or affiliate. This undertaking is particularly important when the subsidiary or affiliate lacks the financial resources or credit history to secure financing on its own. By providing a promise, the parent company strengthens the subsidiary's financial position, enabling it to access capital markets and secure better loan terms. Ultimately, a parent company promise is an essential component of a robust corporate structure, facilitating financial security and stability within the organization.

Benefits of a Parent Company Guarantee

By providing an added layer of financial security, a parent company pledge facilitates a range of benefits that can have a profound impact on the subsidiary's financial position and overall competitiveness. One of the primary advantages of a parent company commitment is Enhanced Credibility. With the backing of a financially robust parent company, the subsidiary can bolster its reputation and establish trust with customers, suppliers, and investors. This, in turn, can lead to increased business opportunities, improved relationships, and access to better financing terms.

Furthermore, a parent company undertaking can provide Financial Flexibility, allowing the subsidiary to take on more ambitious projects, invest in growth initiatives, or weather economic downturns. By mitigating the risk of default, the assurance can also enable the subsidiary to secure more favorable loan terms, reduce borrowing costs, and optimize its capital structure. As a consequence, the subsidiary can allocate resources more efficiently, respond to market opportunities more quickly, and ultimately, drive long-term growth and profitability.

Types of Parent Company Guarantees

While parent company assurances can take various forms, they are generally categorized into two primary types: upstream undertakings and downstream pledges. Upstream undertakings involve a parent company providing a pledge for the debts or obligations of its subsidiary, typically to secure financing or facilitate business transactions. This type of undertaking structure certifies that the parent company assumes responsibility for the subsidiary's liabilities, providing an added layer of credibility and financial security.

In contrast, downstream pledges involve a subsidiary providing a pledge for the debts or obligations of its parent company. This type of instrument is often used to secure financing or facilitate business transactions between the parent company and third-party creditors. Both upstream and downstream undertakings are vital components of corporate finance, enabling companies to access capital markets, manage risk, and optimize their financial performance. By understanding these different types of parent company undertakings, businesses can design and implement effective undertaking structures that meet their unique needs and objectives.

When Is a Guarantee Necessary?

In certain circumstances, a parent company pledge becomes a vital component of a corporate financing strategy, particularly when subsidiaries lack sufficient creditworthiness to secure funding or enter into contractual agreements independently. This is often the case during a financial crisis, when lenders and counterparties become increasingly risk-averse and require additional assurances before providing credit or entering into agreements.

In these situations, a parent company assurance can provide the necessary comfort to lenders and counterparties, enabling subsidiaries to access financing or enter into agreements that would otherwise be unattainable. Regulatory requirements, such as those imposed by banking regulators, may also necessitate the provision of a parent company undertaking. By understanding when an assurance is necessary, companies can better navigate complex financing and contractual arrangements.

Key Components of a Guarantee Clause

A well-crafted warranty clause typically comprises five essential components: the warranty scope, the warranty amount, the warranty duration, the warranty conditions, and the dispute resolution mechanism. These components work in tandem to provide a thorough assurance that addresses the needs of all parties involved.

The assurance scope outlines the specific obligations and liabilities of the parent company, providing clarity on what is covered under the assurance. The warranty amount specifies the maximum financial liability of the parent company in the event of a default. The warranty duration defines the period during which the assurance is valid, while the warranty conditions outline the circumstances under which the assurance can be invoked.

Effective clause drafting is essential in defining and aligning these components clearly with the interests of all parties. A well-drafted assurance clause can provide confidence to creditors and stakeholders, while also protecting the interests of the parent company. By carefully considering each of these components, parties can craft an assurance clause that provides a robust and reliable framework for managing risk and ensuring compliance.

Risks and Limitations of a Guarantee

A parent company guarantee clause can expose the guarantor to potential liability, which may be exacerbated by limited financial resources. This risk is particularly pronounced when the guarantor's financial capabilities are already strained, as assuming additional liabilities can lead to financial distress. Therefore, it is crucial to carefully consider the risks and limitations associated with providing a pledge to safeguard that the guarantor's financial stability is not compromised.

Potential Liability Exposure

The guarantor's assumption of liability for the debtor's obligations exposes it to potential risks, including contingent liabilities, reputational damage, and financial losses. This underscores the importance of conducting a thorough risk assessment to identify and mitigate potential risks. A parent company guarantee clause can have far-reaching consequences, and it is essential to have a financial cushion to absorb potential losses.

Some of the key risks associated with a parent company guarantee clause include:

• Contingent liabilities : The guarantor may be liable for the debtor's obligations, which can impact its financial statements and creditworthiness.
• Reputational damage : A guarantee default can damage the guarantor's reputation and erode stakeholder trust.
• Financial losses : The guarantor may incur significant financial losses if the debtor defaults on its obligations.
• Overextension of credit : The guarantor may overextend its credit, compromising its financial stability.

Limited Financial Resources

Securing a debtor's obligations can strain the guarantor's limited financial resources, potentially compromising its ability to meet its own financial commitments. This is particularly concerning when the guarantor is already operating under financial constraints. By assuming the liability of the debtor, the guarantor may be forced to redirect its cash flow to meet the debtor's obligations, thereby diverting resources away from its own business operations. This redirection of cash flow can have a ripple effect, leading to reduced investments, delayed payments to suppliers, and even delayed employee compensation. Consequently, the guarantor's financial health may deteriorate, making it challenging to recover from the added financial burden. In addition, the guarantor's creditworthiness may be negatively impacted, making it more difficult to secure future financing or credit. In extreme cases, the guarantor may even face insolvency. It is crucial for guarantors to carefully consider their financial capacity before providing a pledge, as the consequences of default can be severe and long-lasting.

Negotiating a Parent Company Guarantee

When negotiating a parent company undertaking, it is crucial to concentrate on the key undertaking provisions that allocate risk and establish the scope of the undertaking. Effective negotiation strategies can help mitigate potential risks and safeguard that the interests of all parties involved are protected. By carefully considering these critical aspects, parties can craft an undertaking that balances their respective needs and objectives.

Key Guarantee Provisions

Key provision provisions in a parent company undertaking typically comprise a range of fundamental elements that define the scope and extent of the guarantor's obligations. These provisions are pivotal in determining the parent company's liability and the extent of its undertaking. Effective provision drafting is imperative to clearly define the scope of the undertaking and make the guarantor's obligations unambiguous.

Some key undertaking provisions to ponder include:

• Undertaking scope : Clearly defining the scope of the undertaking to avoid ambiguity and make the guarantor's obligations well-defined.
• Provision drafting : Ensuring that the undertaking provisions are drafted in a clear and concise manner to avoid misinterpretation.
• Conditionality : Specifying the conditions under which the undertaking will be triggered, such as default or non-payment.
• Term and termination : Defining the term of the undertaking and the circumstances under which it can be terminated.

Negotiation Strategies

In negotiating a parent company indemnity, a thorough understanding of the underlying contractual framework and the interests of all parties involved is vital to achieving a mutually beneficial agreement. Effective negotiation strategies involve recognizing the deal dynamics at play, including the power dynamics, risk tolerance, and priorities of each party. By understanding these factors, negotiators can tailor their approach to address the concerns and needs of each stakeholder, fostering a collaborative environment conducive to relationship building.

A key aspect of negotiation is identifying zones of flexibility and leveraging them to reach a mutually acceptable agreement. This may involve creative solutions, such as tiered assurances or conditional obligations, which can help bridge the gap between the parties' differing interests. Additionally, establishing open lines of communication and fostering trust can facilitate the negotiation process, enabling parties to find innovative solutions that balance their respective needs. By adopting a collaborative and flexible approach, parties can navigate the complexities of parent company assurances and achieve a mutually beneficial agreement that satisfies all stakeholders.

Frequently Asked Questions

Can a subsidiary company issue a guarantee to its parent company?.

A subsidiary company can issue a pledge to its parent company, but this may compromise subsidiary autonomy, as it blurs the corporate hierarchy, potentially undermining the subsidiary's independence and decision-making authority.

Is a Parent Company Guarantee the Same as a Personal Guarantee?

A parent company pledge is distinct from a personal undertaking, as it involves corporate liability, providing financial backing through the parent entity's assets, whereas a personal undertaking relies on an individual's creditworthiness.

Can a Parent Company Guarantee Be Used for Non-Financial Obligations?

A parent company pledge can be used to secure non-financial obligations, expanding the Obligation Scope, and demonstrating Warranty Flexibility, as it provides assurance that the parent company will fulfill the obligations, beyond mere financial commitments.

Are There Situations Where a Parent Company Guarantee Is Unenforceable?

In certain circumstances, a parent company undertaking may be deemed unenforceable due to jurisdictional limits or legal loopholes, such as conflicting laws, unclear contractual language, or fraudulent inducement, rendering the undertaking void or voidable.

Can a Parent Company Guarantee Be Terminated or Revoked?

A parent company undertaking can be terminated or revoked under specific circumstances, including termination grounds such as breach of contract or insolvency, and revocation procedures outlined in the undertaking agreement or applicable laws.

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Parent Company Guarantee

Securing Subsidiary Obligations & Mitigating Risks | UK Law Guide

A parent company guarantee plays a crucial role in ensuring the fulfillment of contractual obligations by a subsidiary company. This legal document provides assurance and indemnification from the parent company to the beneficiary of the contract. It is commonly required in high-value transactions where concerns arise regarding the creditworthiness of the subsidiary company. Typically, the guarantee is provided by the parent company or the ultimate holding company within the subsidiary’s group.

Key Sections of the Parent Company Guarantee:

Introduction and Definitions: This section provides an overview of the purpose and scope of the guarantee, along with relevant definitions to ensure clarity throughout the document.

Guarantee Obligations: The parent company assumes primary responsibility for guaranteeing the financial obligations of the subsidiary company under the contract. This section outlines the extent and nature of the guarantee.

Capacity and Authority: Before entering into the guarantee, the parent company must ensure it has the legal capacity to do so. It reviews its constitutional documents to confirm explicit powers for providing guarantees and indemnities. Additionally, the parent company ensures that granting the guarantee does not breach any existing financing agreements or trigger default under any other agreements.

Execution and Timing: The Parent Company Guarantee can be executed either on the same date as the contract between the subsidiary company and the beneficiary or after its signing. When executed on the same date, it serves as a condition precedent for the contract to take effect.

Consideration and Execution as a Deed: To ensure the validity of the guarantee, it is crucial to establish either adequate consideration or execute the document as a deed. Since a guarantee benefits the beneficiary at the expense of the guarantor, executing the Parent Company Guarantee as a deed eliminates potential debates about the adequacy of consideration.

When to Use a Parent Company Guarantee:

A Parent Company Guarantee is utilized in situations where a subsidiary company requires additional assurance of creditworthiness to secure a contract. It may be used in various scenarios, including:

Large-scale business transactions involving significant financial commitments. Projects requiring substantial investments and long-term contractual obligations. Joint ventures or partnerships where the subsidiary’s financial standing raises concerns. Contracts with third parties that demand additional security due to the subsidiary’s limited resources. This Parent Company Guarantee serves as a powerful tool to safeguard the interests of all parties involved and provides the necessary confidence to proceed with complex transactions. By leveraging the guarantee, the subsidiary company can gain access to valuable opportunities and establish trust with business partners.

In summary, the Parent Company Guarantee offers a legal framework to ensure subsidiary obligations are met, mitigating risks associated with creditworthiness. It is crucial for the parent company to assess its capacity, review constitutional documents, and consider the execution as a deed. By understanding the key sections and appropriate usage of this guarantee, businesses can navigate high-value transactions with confidence and protect their interests effectively.

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Parent company guarantees (PCGs) in construction

Published by a lexisnexis construction expert.

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 to provide guarantees

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Related legal acts:

• Companies Act 2006 (2006 c 46)
• Statute of Frauds (1677) (1677 c 3)

Key definition:

Pcg definition, what does pcg mean.

parent company guarantee

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Parent company guarantees (PCGs) in constructionIn 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

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Performance bonds and parent company guarantees

• Author Derryn Rolfe

Performance bonds and/or PCGs are often required of the contractor in building and engineering projects as a means of securing the purchaser’s position, and limiting their losses, in the event of the contractor’s default. But what’s the difference?

A performance bond is an insurance policy. The contractor takes out the policy with the bondsman – either their own bank or an insurance company – that will, subject to the provisions of the bond, pay to the purchaser a sum of money to offset its losses. The wording of performance bonds varies dramatically, with certain phases being key to how easy it is for the purchaser to call upon it. Over the last 20 years the market has hardened considerably, in common with most insurances, so that the classic “on demand” bond is now rarely available. This type, as the name suggests, means that the purchaser simply must demand payment from the bondsman: clearly a high risk for the bondsman, and the reason why most bonds now require the purchaser’s losses to be proven one way or another. Exactly what level of proof is required is the point of debate between those giving and those receiving the bond. The normal wording now is “established and ascertained”, which is based on the procedures and mechanisms of the underlying contract.

Similarly important is the co-existence of liability with the contractor and the bondsman; the Association of British Insurers (ABI) commonly-used model form of bond doesn’t include this, but the purchaser may well want to do so to avoid the necessity of pursuing the contractor for its losses as a condition precedent to going after the bondsman. The contractor, on the other hand, would wish to avoid this as a co-obligor clause may make the bond more difficult – or expensive – to obtain.

Assignment clauses are another point of negotiation, and whether the ability of the purchaser to assign the bond without the prior consent of the guarantor and contractor is important usually depends on whether or not there is an external funder for the project. A funder will always want the bond to be assignable and will often hold an executed but undated deed if assignment in escrow as part of its security package.

The ability of the purchaser to call in the bond upon the insolvency of the contractor is usually key: it is, sadly, the most common reason for needing to do so. There is still debate about the effect of a 1994 case called Perar BV v General Surety and Guarantee Co Ltd in which the Court of Appeal confirmed that insolvency is not necessarily a breach of a building contract and therefore not covered by the bond. Standard and model form contracts so usually include insolvency as a breach of the contract, but there is still a debate about the timelines of making a claim under a JCT in particular, so it is worth ensuring that it is explicitly covered.

But regardless of the details of the drafting, the point of a performance bond is to provide cash; a parent company guarantee, however, could instead (or, indeed, also) be used to require the contractor’s parent company to step in and compete the performance of the contractor’s obligations in the event of their default.

PCGs rise and fall in popularity and use, although the first requirement is, of course, that the contractor has a parent company. If it does, it is normal for the guarantee to be from the ultimate parent company, as complicated corporate structures could mean that the purchaser is holding a guarantee from a shell company with no assets. Some contractors prefer a PCG because it doesn’t affect their credit rating in the same way as a performance bond and can come at zero cost. It does sit as a liability on the books of the parent company, though, so company policy may mean that PCGs are not always free. As with performance bonds, the detail of the drafting is key to the ease with which the purchaser can get recompense. Many of the same issues apply as with bonds, but whereas bonds tend to be for a percentage of the contract sum PCGs tend to be for the entirety of it. The most important provision for the purchaser is to ensure that the guarantor cannot act against the contractor for its own losses whilst the guarantor’s liabilities to the purchaser are unsatisfied.

So which is best? Neither: they both have their place. If the purchaser definitely wants the project completed with single-point design or workmanship liability, or if time for completion is the critical issue, then a PCG is the only option. If they want cash, then a bond is probably the answer – an independent bond is safer than one from a parent company which may also go into insolvency. Asking for both is, except for major projects, probably overkill.

If you have any questions on Performance bonds or parent company guarantees, our Construction and Engineering team will be happy to help. Please get in touch for further information

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Home / Construction / Contract Management / Parent Company Guarantee

Parent Company Guarantee  (B149)

Who can use this contract.

This parent company guarantee is for use where a company entering into a contract is required by its client to provide a guarantee of performance from its parent company.

What is this contract for?

The main aim of a parent company guarantee is to give the client some security.  If the client’s contractor fails to perform or becomes insolvent, the client has can claim under the parent company guarantee.  The parent company then either to perform the contract or pay the losses incurred by the client as a result of the subsidiary’s default.

What are the main issues?

While fairly balanced, this document is drafted from the parent company’s perspective and the wording makes it clear that the parent company’s liability only arises if its subsidiary commits a breach of its contract and fails to rectify the breach.

The liability of the parent is limited so that it will be no greater than that of the subsidiary under its contract with the client.

You can use this document if you are a company acting as guarantor for a subsidiary’s contracts, and want clarity on the terms of your guarantee agreement.

What detailed terms does the contract contain?

The main points cover:

• notice of liability
• notices between parties
• third party rights
• governing law

For more information on each of these sections, see our Explanatory Notes  which you will  receive when you download the document from our website.

For information on signing documents see our Contract Signing page

When I download the document, can I change it and/or use it more than once?

Yes, all ContractStore’s templates are in MS Word and you can use the contract on more than one project. For more information, watch the video on this page of our website or see our FAQs

Legal support

ContractStore supplies templates and is not a law firm.  But experienced lawyers write all our templates, so we can arrange legal assistance for customers who need special terms in one of our documents or a bespoke template. . For more information see our Legal Services page.  For more information see our Legal Services page .

Contract Author – Giles Dixon

And if you want to contact us see our Contacts page .

If you have any questions about a contract and/or want to see these notes before you buy, please let us know by using our contact form

You may also find these contracts of use:

Tender Bond (Bid Bond)  (B140)

Who can use this tender bond? A developer, buyer. public authority or other organisation. It is also known as a bid bond. What is this tender bond for? It is for use by a company

Read More →

Advance Payment Guarantee  (B141)

What is this advance payment guarantee for? A developer will want this guarantee if it  makes an advance payment to a contractor. So, it will require a guarantee from a bank or other financial institution 

Short Form of Contract for Works & Services  (B121)

Who can use this template contract for works and services ? Any individual or business that needs occasional building or similar work. What is this contract for? It contains a  set of terms and conditions

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Trademark assignments: Transferring ownership or changing your name

Assignment Center

Trademark owners may need to transfer ownership or change the name on their application or registration. This could happen while your trademark application is pending or after your trademark has registered. Use Assignment Center to transfer ownership or to request a change in name. See our how-to guide for trademarks on using Assignment Center.

Here are examples of common reasons:

• I’ve sold my business and need to transfer ownership of the trademark. This is a transfer of ownership called an assignment.
• I got married just after I filed my application and my last name changed.  This is a name change of the owner. 

There are fees associated with recording assignments, name changes, and other ownership-type changes with the USPTO. See the Trademark Services Fee Code “8521” on the current fee schedule to find the specific fee amount.

See the correcting the owner name page to learn if you can correct an error in the owner's name that does not require an assignment.

Limitations based on filing basis

Intent-to-use section 1(b) applications.

If you’re transferring ownership to a business successor for the goods or services listed in your identification, you can file your assignment at any time. In all other cases, you must wait until after you file an  Amendment to Allege Use or a Statement of Use before you file your assignment. For more information, see the Trademark Manual of Examining Procedure (TMEP)  section 501.01(a) . 

Madrid Protocol section 66(a) U.S. applications and registrations

All ownership changes involving international registrations must be filed with the International Bureau of the World Intellectual Property Organization (WIPO). Follow the guidance on the WIPO website about changing ownership or changing an owner’s or holder’s name. See the  TMEP section 502.02(b) for more information.

How to update ownership information

Submit a request to transfer ownership or change the name.

Use Assignment Center to submit your request to transfer ownership or change the owner name for your U.S. application or registration. You will need to fill out a cover sheet with certain information and may also need to upload supporting documents, depending on the type of change. Also, be prepared to pay the Trademark Services Fee Code “8521” on the current fee schedule .

You'll receive a notice of recordation or non-recordation

In about seven days, look for your notice. If you don’t receive one, contact the Assignment Recordation Branch . The Notice of Non-Recordation will explain the reason your request to record was denied. Here are four common reasons: 

• A critical piece of information was omitted from the cover sheet. 
• The document is illegible or not scannable. 
• The information on the cover sheet and the supporting document do not match. 
• The assignment was not transferred with the good will of the business. 

USPTO trademark database will be automatically updated after recordation

Once recorded, the trademark database should reflect the new owner information or name change. Check the Trademark Status and Document Retrieval (TSDR) system to see if the owner information has been updated. See below for information about what to do if the database isn’t updated.

What to do if the USPTO trademark database isn’t updated

In some cases, the USPTO will not automatically update the trademark database to show the change in ownership or name. This could happen when the execution date conflicts with a previously recorded document or multiple assignments have the same execution date on the same date. For more information, see TMEP section 504.01 . 

If the trademark database wasn’t updated and your trademark has not published in the Trademark Official Gazette yet, and you need to respond to an outstanding USPTO letter or office action, use the appropriate Response form to request the update of the owner information. If you don’t have a response due, use the Voluntary Amendment form . To do this,

• Answer “yes” to the question at the beginning of the form that asks if you need to change the owner’s name or entity information.
• Enter the new name in the “Owner” field in the “Owner Information” section of the form.

Your request to update the owner information will be reviewed by a USPTO employee and entered, if appropriate. To request the owner information be updated manually when your trademark has already published or registered, use the appropriate form listed in the “Checking the USPTO trademark database for assignment/name change” section below.

If you made an error in your Assignment Center cover sheet 

Immediately call the Assignment Recordation Branch to request possible suspension of the recordation. The recordation may be suspended for two days. You’ll be instructed to email the specialist you speak with requesting the cancellation and that a refund be issued. However, if the assignment has already been recorded, your request will be denied. You must then follow the procedures outlined in the TMEP section 503.06 to make any corrections to the assignment.

We strongly recommend filing these changes online using Assignment Center , which will record your changes in less than a week. It is possible to request these changes by paper using the Recordation Form Cover Sheet and mailing the cover sheet, any supporting documentation, and fee to: 

Mail Stop Assignment Recordation Branch Director of the U.S. Patent and Trademark Office PO Box 1450 Alexandria, VA 22313-1450

If you file by paper, we will record your changes within 20 days of filing. 

Checking the USPTO trademark database for assignment /name change

After you receive a Notice of Recordation, wait one week before checking to see if the owner information has been updated in your application or registration in the trademark database. Follow these instructions:

• Go to TSDR .
• Enter the application serial number or registration number.
• Select the “Status” button.
• Scroll down to the “Current Owner(s) Information” section. 
• Check to see that your owner information was updated correctly.

If the owner information hasn’t yet been updated, go to the “Prosecution History” section in TSDR to see the status of the assignment or name change. It can take up to seven days to see an entry in the Prosecution History regarding the assignment. If an entry shows "Ownership records not automatically updated," you will need to submit a TEAS form making the owner or name change manually.

The form you need depends on where your application is in the process.

• If your trademark has not published in the Trademark Official Gazette yet, use the TEAS Response to Examining Attorney Office Action form or the TEAS Voluntary Amendment form . If you are responding to an outstanding USPTO Office action regarding your application or registration, use the TEAS response form.
• If your trademark has published but hasn't registered, use the TEAS Post-Publication Amendment form . 
• If your trademark is registered , use the TEAS Section 7 Request form . A fee is required.

Updating your correspondence information

If your ownership information is automatically updated in TSDR , you must ensure your correspondence information, including any attorney information, is also updated. To update your correspondence or attorney information, use the TEAS Change of Address or Representation (CAR) form . This form cannot be used to change the owner name.

For further information, see TMEP Chapter 500 and look at the frequently asked questions .

Additional information about this page

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Airline Family Seating Dashboard

A parent who purchases airline tickets for a family should receive a guarantee from the airline that it will seat the parent and child together without fees or a last-minute scramble at the gate or having to ask other passengers to give up their seat to allow the parent and child to sit together. On February 1, 2023, Secretary Buttigieg announced the Department's plan to launch a dashboard that displays which airlines guarantee family seating. Since then, some airlines have stepped up to guarantee adjacent seats for young children traveling with an accompanying adult at no additional cost. While this represents significant progress, USDOT is not stopping here. Secretary Buttigieg recently submitted to Congress a legislative proposal to require that airlines provide fee-free family seating .

Commitment for Fee-Free Family Seating

Please click this link for an alternative text version of the dashboard .

Limited Conditions

* When using an airline that assigns seats, the airline can condition its guarantee on each of the following:

• Child and accompanying adult are on the same reservation;
• Adjacent seats are available at the time of booking in the selected class of service;
• Aircraft is not substituted for smaller aircraft;
• Adult either chooses seats for the entire reservation or skips seats for the entire reservation, and does not make changes to seat assignments once assigned to them; and
• It is physically possible based on seat layout to seat the number of young children traveling next to the accompanying adult(s).

If the conditions are satisfied, airlines that assign seats and guarantee fee-free family seating will provide adjacent seat assignments to the adult traveling with a child age 13 or under no later than on the day before the flight.

* When using an airline with an open seating policy, the airline can condition its guarantee on the following:

• Child and accompanying adult are on same reservation;
• Accompanying adult notifies gate agent of need for adjacent seats prior to start of boarding; and

DOT is not satisfied with airline statements that they will "make efforts" to seat families traveling with children together at no additional cost. The Department urges all airlines to guarantee family seating. DOT will update the dashboard above to provide air travelers clear information about the airlines that commit to providing adjacent seats for a young child and an accompanying parent and those that do not.

The dashboard will serve as a bridge to help families while the Department advances a rulemaking to ensure airlines seat young children adjacent to a parent or other accompanying adult. In addition, the President has called upon Congress to fast track the ban on family seating fees so that DOT can take action to stop those practices more quickly than through a rulemaking.

Tips for Families

The Department provides families practical tips that families may use before, during, and after air travel and links to airline websites with information applicable to family seating .

If you are dissatisfied with an experience related to family seating, you can file a complaint with the airline or DOT. Click here to file a complaint with the DOT.

See below for detailed information about airline customer service commitment plans.

Airlines' Customer Service Plans

• Alaska Airlines
• Allegiant Air
• American Airlines
• Delta Air Lines
• Frontier Airlines
• Hawaiian Airlines
• JetBlue Airways
• Southwest Airlines
• Spirit Airlines
• United Airlines