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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