LEGAL PRACTICE COURSE
Commercial Law and Practice
Skills Session 11: Pre-Session Task Suggested Answer
GUARANTEE AND INDEMNITY
This Gguarantee and indemnity (this “Guarantee”) is made on [ ] 2020 between:
(1) PEGASUS DREAMS PLC (registered number 789654), PEGASUS SERVICES
LIMITED (registered number 890765) and PEGASUS PROMOTIONS LIMITED
(registered number 987654) (the “Guarantors”); and
(2) BORLI BANK PLC (registered number 7895643) (the “Lender”).
This guarantee and indemnity is provided pursuant to and in respect of a £5,500,000
Facilities Agreement between the Lender, Pegasus Dreams plc (as “Company”, “Borrower”
and “Guarantor”), Pegasus Services Limited (as “Borrower” and “Guarantor”) and Pegasus
Promotions Limited (as “Borrower” and “Guarantor”) dated on or about the date of this
guarantee (the “Facilities Agreement”).
IT IS AGREED as follows:
1. Definitions
In this Guarantee:
“Group” means the Company and its Subsidiaries for the time being.
“Subsidiary” means a subsidiary undertaking within the meaning of section 1159 of the
Companies Act 2006.1
New definition has been added to the definition so we now have a definition of subsidiary.
The reason we need to have a definition for ‘subsidiary’ is that throughout the document the
defined term group is used. When you look at the definition of a group it says the company
which is Pegasus Dreams and its subsidiaries for the time being so we want to know what
we mean when we say subsidiary.
2. Guarantee
Each Guarantor irrevocably and unconditionally jointly and severally2:
Jointly and severally has been added in. From the banks point of view this is
desirable because it makes sure the bank can claim the full amount guaranteed from
any of the guarantors does not have to split the claim between the 3 of them and
that’s useful if one of the guarantors is in a much better position to pay than others.
(a) guarantees to the Lender punctual performance by each Borrower of all the
Borrower’s obligations under the Facilities Agreement3;
1
This capitalised term is used in the definition of “Group”, which is used in paragraph 5(b).
2
Joint and several liability ensures that the Lender will be able to claim the full amount of any liability
against either and/or all Guarantors as it wishes.
3
Note that the obligations guaranteed are in respect of each Borrower and in respect of all of its
“obligations under the Facilities Agreement”. This would therefore cover not only repayment of
principal but also payment of interest, commitment fees and any other fees due under the Facilities
Agreement.
docs_627173830.docx 1/5 © City, University of London 2020
, LEGAL PRACTICE COURSE
(b) undertakes with the Lender that whenever a Borrower does not pay any amount
when due under or in connection with the Facilities Agreement, that Guarantor
shall immediately on demand pay that amount as if it was the principal obligor;4
the wording ‘on demand’ means that if the borrower fails to fulfil its obligations
then the bank can immediately demand that the guarantor pay up and no other
conditions have to be fulfilled.
Lots of other amendments in clause 2 make it clear that its intended that the
guarantors should have a primary obligation. In other words they are providing a
guarantee and indemnity. At 2b it says pay that amount as if it was the principal
obligor’. At 2c ‘’if any obligations guaranteed by it is or becomes unenforceable,
invalid or illegal, it will, as an independent and primary obligation, indemnify the
Lender immediately’’.
(c) agrees with the Lender that if any obligations guaranteed by it is or becomes
unenforceable, invalid or illegal, it will, as an independent and primary obligation,
indemnify the Lender immediately on demand against any cost, loss or liability it
incurs as a result of a Borrower not paying any amount which would, but for such
unenforceability, invalidity or illegality, have been payable by it under the Facilities
Agreement on the date when it would have been due.5
3. Continuing Guarantee
This guarantee is a continuing guarantee and will extend to the ultimate balance of
sums payable by any Borrower under the Facilities Agreement, regardless of any
intermediate payment or discharge in whole or in part.6
At clause 3 its made clear that the guarantee is a continuing guarantee. (provision
appeared in draft 2). It’s an important point because part of what’s being lent is going
to be lent pursuant to a revolving credit facility and that means that from time to time
the amount outstanding might be repaid by the borrower and then re borrowed. So
we want to make sure that the guarantee isn’t accidentally discharged at any point.
So its clearly expressed to be a continuing guarantee.
4. Reinstatement
If any discharge, release or arrangement (whether in respect of the obligations of any
Borrower or any security for those obligations or otherwise) is made by the Lender in
whole or in part on the basis of any payment, security or other disposition which is
avoided or must be restored in insolvency, liquidation, administration or otherwise,
without limitation, then the liability of each Guarantor under this Guarantee will
continue or be reinstated as if the discharge, release or arrangement had not
occurred.7
The aim of clause 4 is to make sure the nature of the guarantee is continuing.
4
The obligation to pay “immediately on demand” is important, to make clear that payment is not
conditional on the happening of a specified event.
5
Sub-clauses (b) and (c) are needed to create a primary indemnity liability on the Guarantor to make
payment regardless of whether or not a Borrower defaults. Sub-clause (a) only provides a guarantee
with all of the disadvantages which follow from this – for example, if the Facilities Agreement was void
and/or unenforceable for some reason, the guarantee would also be void and/or unenforceable. The
primary indemnity liability is supported by Clause 5, in which the Guarantors agree that their
obligations under the guarantee will not be affected by any release, amendment, unenforceability or
invalidity of the obligations of the Borrowers under the Facilities Agreement. It is also supported by
Clause 6, which makes clear that the Lender need not take action against the Borrower before
proceeding against a Guarantor.
6
This is particularly important on the facts because, as discussed in Workshop 11, the Facilities
Agreement will include a revolving credit facility which may be repaid and reborrowed.
© City, University of London 2020 2/5 docs_627173830.docx
Commercial Law and Practice
Skills Session 11: Pre-Session Task Suggested Answer
GUARANTEE AND INDEMNITY
This Gguarantee and indemnity (this “Guarantee”) is made on [ ] 2020 between:
(1) PEGASUS DREAMS PLC (registered number 789654), PEGASUS SERVICES
LIMITED (registered number 890765) and PEGASUS PROMOTIONS LIMITED
(registered number 987654) (the “Guarantors”); and
(2) BORLI BANK PLC (registered number 7895643) (the “Lender”).
This guarantee and indemnity is provided pursuant to and in respect of a £5,500,000
Facilities Agreement between the Lender, Pegasus Dreams plc (as “Company”, “Borrower”
and “Guarantor”), Pegasus Services Limited (as “Borrower” and “Guarantor”) and Pegasus
Promotions Limited (as “Borrower” and “Guarantor”) dated on or about the date of this
guarantee (the “Facilities Agreement”).
IT IS AGREED as follows:
1. Definitions
In this Guarantee:
“Group” means the Company and its Subsidiaries for the time being.
“Subsidiary” means a subsidiary undertaking within the meaning of section 1159 of the
Companies Act 2006.1
New definition has been added to the definition so we now have a definition of subsidiary.
The reason we need to have a definition for ‘subsidiary’ is that throughout the document the
defined term group is used. When you look at the definition of a group it says the company
which is Pegasus Dreams and its subsidiaries for the time being so we want to know what
we mean when we say subsidiary.
2. Guarantee
Each Guarantor irrevocably and unconditionally jointly and severally2:
Jointly and severally has been added in. From the banks point of view this is
desirable because it makes sure the bank can claim the full amount guaranteed from
any of the guarantors does not have to split the claim between the 3 of them and
that’s useful if one of the guarantors is in a much better position to pay than others.
(a) guarantees to the Lender punctual performance by each Borrower of all the
Borrower’s obligations under the Facilities Agreement3;
1
This capitalised term is used in the definition of “Group”, which is used in paragraph 5(b).
2
Joint and several liability ensures that the Lender will be able to claim the full amount of any liability
against either and/or all Guarantors as it wishes.
3
Note that the obligations guaranteed are in respect of each Borrower and in respect of all of its
“obligations under the Facilities Agreement”. This would therefore cover not only repayment of
principal but also payment of interest, commitment fees and any other fees due under the Facilities
Agreement.
docs_627173830.docx 1/5 © City, University of London 2020
, LEGAL PRACTICE COURSE
(b) undertakes with the Lender that whenever a Borrower does not pay any amount
when due under or in connection with the Facilities Agreement, that Guarantor
shall immediately on demand pay that amount as if it was the principal obligor;4
the wording ‘on demand’ means that if the borrower fails to fulfil its obligations
then the bank can immediately demand that the guarantor pay up and no other
conditions have to be fulfilled.
Lots of other amendments in clause 2 make it clear that its intended that the
guarantors should have a primary obligation. In other words they are providing a
guarantee and indemnity. At 2b it says pay that amount as if it was the principal
obligor’. At 2c ‘’if any obligations guaranteed by it is or becomes unenforceable,
invalid or illegal, it will, as an independent and primary obligation, indemnify the
Lender immediately’’.
(c) agrees with the Lender that if any obligations guaranteed by it is or becomes
unenforceable, invalid or illegal, it will, as an independent and primary obligation,
indemnify the Lender immediately on demand against any cost, loss or liability it
incurs as a result of a Borrower not paying any amount which would, but for such
unenforceability, invalidity or illegality, have been payable by it under the Facilities
Agreement on the date when it would have been due.5
3. Continuing Guarantee
This guarantee is a continuing guarantee and will extend to the ultimate balance of
sums payable by any Borrower under the Facilities Agreement, regardless of any
intermediate payment or discharge in whole or in part.6
At clause 3 its made clear that the guarantee is a continuing guarantee. (provision
appeared in draft 2). It’s an important point because part of what’s being lent is going
to be lent pursuant to a revolving credit facility and that means that from time to time
the amount outstanding might be repaid by the borrower and then re borrowed. So
we want to make sure that the guarantee isn’t accidentally discharged at any point.
So its clearly expressed to be a continuing guarantee.
4. Reinstatement
If any discharge, release or arrangement (whether in respect of the obligations of any
Borrower or any security for those obligations or otherwise) is made by the Lender in
whole or in part on the basis of any payment, security or other disposition which is
avoided or must be restored in insolvency, liquidation, administration or otherwise,
without limitation, then the liability of each Guarantor under this Guarantee will
continue or be reinstated as if the discharge, release or arrangement had not
occurred.7
The aim of clause 4 is to make sure the nature of the guarantee is continuing.
4
The obligation to pay “immediately on demand” is important, to make clear that payment is not
conditional on the happening of a specified event.
5
Sub-clauses (b) and (c) are needed to create a primary indemnity liability on the Guarantor to make
payment regardless of whether or not a Borrower defaults. Sub-clause (a) only provides a guarantee
with all of the disadvantages which follow from this – for example, if the Facilities Agreement was void
and/or unenforceable for some reason, the guarantee would also be void and/or unenforceable. The
primary indemnity liability is supported by Clause 5, in which the Guarantors agree that their
obligations under the guarantee will not be affected by any release, amendment, unenforceability or
invalidity of the obligations of the Borrowers under the Facilities Agreement. It is also supported by
Clause 6, which makes clear that the Lender need not take action against the Borrower before
proceeding against a Guarantor.
6
This is particularly important on the facts because, as discussed in Workshop 11, the Facilities
Agreement will include a revolving credit facility which may be repaid and reborrowed.
© City, University of London 2020 2/5 docs_627173830.docx
