Law: Corporate Guarantee in Italy

Aldo Lucarelli
27 ott 2021
Tempo di lettura: 3 min

Aggiornamento: 26 nov 2021

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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.

Unlimited guarantee, where the guarantor is not limited by a particular amount, are not permitted by Italian law.

For such reason it's important to focus:

1. type of obligations to be guaranteed

2. total amount of such obligations

3. time of the obligations, monthly/yearly.

4. documents.

8) We can identified many kind of Guarantee, but we focus on:

A) Performance Guarantee (Performance Bond) – Requested by the creditor, in lieu of a cash deposit, to promptly retaliate in the event of a declaration of default of the contractual obligations of the supplier of goods or services

B) Payment guarantee (Payment guarantee) – It has the function of guaranteeing the execution of a payment, to be executed directly in favour of the creditor.

9) It's also very important to specify if the parental guaranteed will be for the “same obligation” of the part of the contract or will be for the amount without reference to the original contract obligations.

In few words, The parent company will guarantee the obligation arising from the main contract or only the money value.

10) In order to have the above mentioned effect, it's important to specify in the guarantee text that article 1945 and 1957 Italian civil code will have or not effect.

11) Time and effectiveness:

In order to put in action the guaranteed it's important to carry out a injunction in Tribunal. Such actions, ruled by article 633 and 634 of the Italian procedural civil code, normally require 15/30 days but could be opposed the guarantor that will not be in accordance with the request.

Normally the creditor – if use the rights documents such as invoices and contract documents in which is clearly focus the tenant/debtor's obligations – will have the declaration of inforceability in accordance with the article 648 of the procedural civil code within two weeks.

The tribunal will be indicated in the text of the guaranteed, normally it's his city tribunal ( city in Italy).

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