A guarantee is an undertaking by one person (the guarantor) to perform an obligation of another person (a borrower or other debtor), given in favour of the person to whom that obligation is owed (the beneficiary). A guarantee is what is known as a “secondary” obligation – this means that the guarantor is only liable if the borrower or debtor has failed to perform the “primary” obligation, which is the obligation of the borrower or debtor which has been guaranteed. In the context of a loan agreement, a guarantee is an undertaking from the guarantor to the lender that the borrower will perform the borrower’s obligations under the loan agreement, the most relevant obligation being to repay the loan and interest. If the borrower does not pay, the guarantor will perform the obligation itself and make the payment instead of the borrower.

Why are guarantees also given as indemnities?

Guarantees are almost always drafted both as a guarantee and as an indemnity. Unlike a guarantee, an indemnity is a “primary” obligation – it is an undertaking from one person (the guarantor) to pay the beneficiary if the beneficiary suffers loss as a consequence of a specified event. In the case of an indemnity which is part of a guarantee for a loan, the specified event is the non-payment of the loan or other breach of the loan agreement. As a primary obligation of the guarantor, the indemnity is independent of the obligations of the debtor or borrower. An indemnity should, unlike a guarantee, remain in effect should the underlying loan agreement or equivalent transaction be set aside or if the borrower is somehow discharged from its obligations under the loan agreement.

What are the formalities of a guarantee?

A guarantee must be in writing and signed by the guarantor (or the guarantor’s agent). It is usual also for a guarantee to be executed as a deed, to avoid an argument that it lacks contractual consideration.

Deed of Guarantee: corporate guarantor

Name: Deed of Guarantee - corporate guarantor
SKU: FIN005.001
Price: 35.00 GBP
Availability: InStock

Guarantee from a company (as opposed to an individual) for a corporate borrower’s obligations under a loan agreement. The guarantee is in the form of a standalone Deed of Guarantee between the guarantor and the lender.

for a guarantee to be given by a company for the obligations of another company under a loan agreement
for a guarantee in the form of a standalone Deed of Guarantee
where both guarantor and borrower are incorporated in England and Wales

What are the key features?

14 clauses over 6 pages
standalone deed of guarantee
guarantee undertakings given by way of both guarantee and indemnity
standard creditor protections for the continuing effect of the guarantee

What other documents are available?

For a form of guarantee to be given by an individual (as opposed to a company), see

Guarantee: individual guarantor

For a guarantee clause to be included in a loan or other agreement, see

Guarantee: contract clause.

Description

When do I use this document?

where one or more shareholders wish to remove a director
where the Articles of Association do not include a simpler removal process
as special notice pursuant to the Companies Act 2006 to remove a director

Key features

special notice required to remove a director from office
including an ordinary resolution to remove a director, for use by either a single shareholder or multiple shareholders
alternative forms covering:
- removal of director only
- removal of director and appointment of replacement director

What else do I need to know?

Under section 168 of the Companies Act 2006, shareholders can remove a director by passing an ordinary resolution at a general meeting. This decision cannot be made by written resolution. The shareholder proposing the removal must give formal notice to the company. The Articles of Association cannot override this statutory process or change the notice periods required for the process.

Once the company receives special notice, the board must call a shareholder meeting. This meeting must take place at least 28 days after the notice is received. The director facing removal has the right to submit written representations, which the company must circulate to shareholders before the meeting.

The special notice may also propose appointing a new director to replace the one being removed.

In some companies, weighted voting rights can protect shareholder-directors being removed from office by granting them extra votes on removal resolutions. This is common in joint ventures, multi-shareholder businesses, or investor agreements where director rights need protection.

Being removed as a director does not affect employment rights, but it may lead to legal claims, such as wrongful dismissal. If the removed director is also a shareholder, they may claim unfair prejudice under the Companies Act 2006 – particularly in quasi-partnerships, where they expected to be involved in management. If the claim succeeds, the court may order other shareholders to buy their shares at fair value.

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£35.00 exc VAT

Updated by a lawyer on 05/09/2024

Updated By a lawyer on 01/05/2023

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Deed of Guarantee: corporate guarantor