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Once the capacity and authority of a company to enter into a guarantee have been investigated, the next step is to consider the commercial (or corporate) benefit of entering into the guarantee.

Issues of commercial benefit can be of particular concern in finance transactions which include a guarantee because the company providing the guarantee is often in the position of taking on a considerable contingent financial liability for the obligations of a third party (typically the principal debtor of the lender—see Practice Note: Guarantees—Whose obligations are guaranteed?). On the face of it, providing such a guarantee would appear not to be in the commercial interests of the guarantor. See the Q&A: In what circumstances do I really need to worry about commercial (or corporate) benefit?

This Practice Note considers the issues that arise in relation to commercial benefit when a company provides a corporate guarantee. In particular it covers:

1. •

   the duty of directors to promote the success of the company and commercial benefit

2. •

   issues surrounding intra-group guarantees

3. •

   insolvency issues including how commercial benefit is relevant to transactions