Summary:
It is common for a parent to be asked to guarantee an obligation of a subsidiary. However, it may be dangerous to judge a proposed parent company guarantee (PCG) by its cover. Although it may be described as a ‘guarantee’ it may also actually contain a number of indemnities, the implications of which are very different. If a PCG is not carefully reviewed to ensure that it does not contain both indemnity and guarantee provisions, this will create uncertainty and could result in costly litigation. The recent case of Vossloh Aktiengesellschaft v Alpha Trains (UK) Limited (2010) serves as a cautionary tale.