Deed of indemnity for guarantee
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England & Wales
Scotland
- Length:2 pages (1700 words)
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About this document
This is a short, solicitor drawn agreement that enables a guarantor to impose a legal obligation on the person he or she has guaranteed. Either party can be an individual or a company.
An indemnity does not protect the guarantor from his fulfilling his or her guarantee in any way if called. Instead, it simply gives him or her a legal basis for seeking damages from the person or company he or she has guaranteed.
This document can be used in many circumstances. The most common use is where a director has personally guaranteed a debt or an obligation of his or her company. If the company reneged on its promise and the guarantee was called, the director could use this agreement to claim against the company as an unsecured creditor.
Examples
The two directors of a company agree that the company may enter into a hire agreement to lease a company car for director A as an employee benefit. Director B signs a personal guarantee for the hire agreement, but does not realise that A has intentionally not done so. B discovers the position and insists that A signs this indemnity agreement so that A is legally bound to make good to B if the leasing company calls on the guarantee.
A group of companies is being restructured. Subsidiary XYZ is to be sold and a buyer has been found. However, the buyer is concerned at the level of debt in the company. The seller agrees to indemnify the buyer, using this agreement, if XYZ fails to meet its debt obligations due in next 12 months.
Note that this is a more efficient way to deal with the circumstances than for the seller to agree to guarantee the debts. Firstly, the dubious solvency of XYZ will remain unknown to a creditor because there is no change in ownership that would alert him to it, and secondly, because if the indemnity is called, the cash will go to the buyer and not to XYZ.
The law in this document
There is no statute law that relates to indemnities. This document is based on common contract law.
Net Lawman also offers other document templates for guarantees and indemnities.
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