Law: Corporate Guarantee in Italy

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1) ​A corporate guarantee is an official letter where a guarantor becomes responsible for handling debt payments or takes overall responsibility for debt repayment in case the debtor (tenant) defaults on the execution of a contracts or a lease agreement.

2) ​The parent corporate guarante (pcg) represents the guarantee released by the parent company in favour of third parties to guarantee the commitments of a subsidiary, and It is a legal agreement between a borrower/debtor, lender/guaranteed, and guarantor (parent company), whereby a corporation (e.g., parent company) takes responsibility for the debt repayment of the borrower/debtor provided it faced bankruptcy or doesn't comply with the main agreement terms.

3) ​The following parties are involved in a corporate guarantee:

▪ Lessor: who has to be guaranteed for the execution of the contract by the other entity;

▪ Tenant: debtor or who has the obligation to pay monthly.

▪ Guarantor: the parent company who agrees to be liable for the repayment if the Tenant fails to pay.

4)​ Corporate guaranteed became parent company guaranteed when the guarantor ​is the parent company pursuant to article 2359 of italian civil code.

As ​above mentioned, there is a legal presumption (unless proved otherwise) that ​the direction and coordination of companies is exercised, inter alia, by those ​companies which control them pursuant to Article 2359 CC. It is therefore ​important to briefly describe the contents of this and its related provisions.

5) ​Article 2359 CC contains a definition of controlled companies, which are: (i) those ​companies where another company has the majority of the votes exercisable in ​the ordinary shareholders' meeting; (ii) those companies where another company ​has votes sufficient to exercise a dominant influence in the ordinary shareholders' ​meeting; (iii) those companies which are under a dominant influence of another ​company due to particular contractual links with the same.

For purposes of items ​(i) and (ii) above, the votes exercisable by controlled companies, fiduciary ​companies and intermediaries are also computed, while votes exercised on ​behalf of third parties are not.

6)​ For the guaranteed the following data should be clearly stated in a corporate ​guarantee:

1. The debtor’s name.

2. Details of the guarantor (e.g., name, contact info, address, etc.)

3. The lessor’s information (e.g., name, address)

4. Statement of any limits to the guarantee (e.g., a maximum amount of being repaid by the guarantor)

5. Time-Duration;

6. Statement: at first call and without exception.

​It is important to always check the legal names of the guarantor, the lessor, and ​the tenant in the document.

​7) ​Types of Corporate Guarantees: Corporate guarantees can be limited and ​unlimited. A limited guarantee means that a guarantor will be liable for the debt ​of the ​debtor only to a certain extent.

​In Italy in accordance with article 1938 of the civil code only limited guarantee are ​legal.