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CASE STUDY
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Sister guarantee meaning
What does Sister guarantee mean?
A sister guarantee is a group guarantee given by a fellow subsidiary—i.e. a company at the same level in the corporate group—of the obligations of another subsidiary, rather than by the parent or a lower‑tier subsidiary. Often called a cross‑stream guarantee, it is commonly used in loan facilities, acquisition finance and bond documentation to broaden the guarantor group and enhance lender or noteholder credit support. The term is descriptive market practice, not a statutory definition.
Key legal features include: corporate power and corporate benefit analysis; directors’ duties; solvency and unlawful distribution risks; and the use of limitation language to cap liability so the guarantee does not amount to an unlawful return of capital or render the guarantor insolvent. Appropriate board and (where needed) shareholder approvals, and intragroup consideration, are typically addressed in the signing pack.
Jurisdictional notes:
- England & Wales, Scotland and Northern Ireland: the Companies Act 2006 removed the financial assistance prohibition for private companies, but it still applies to public companies and their subsidiaries, so acquisition‑related guarantees require care.
- Ireland: financial assistance is generally prohibited unless approved via the Summary Approval Procedure under the Companies Act 2014.
Usage and core analysis are otherwise broadly consistent across these jurisdictions.
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View the related Practice Notes about Sister guarantee
PRACTICE NOTES
Comprehensive glossary of UK restructuring and insolvency terms, covering Companies Act schemes, Part 26A plans, IA 1986 processes, and cross‑border concepts including COMI, UNCITRAL and assimilated EU rules.
This glossary sets out numerous expressions regularly encountered in the restructuring & insolvency sphere. Words shown in bold within definitions are themselves explained in other entries in this glossary as well. A Article X The MLIJ contains a single provision named Article X, aimed at jurisdictions that have already implemented the MLCBI, like England, or are weighing its adoption. Article X states: ‘Not withstanding any prior interpretation to the contrary, the relief available under [insert a cross-reference to the legislation of this State enacting Article 21 of the UNCITRAL Model Law on Cross-Border Insolvency] includes recognition and enforcement of a judgment’ (see Practice Note: UNCITRAL model law on recognition and enforcement of insolvency-related judgments (MLIJ): Article X). Asset-backed security (ABS) A form of security anchored by asset pools, for example loans, leases, and credit card receivables. Assimilated law From 1 January 2024, ‘retained law’ has been retitled ‘assimilated law’. The body of domestic law originally arising from EU obligations, created by the European...
21 May
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PRACTICE NOTES
UK Banking, Finance, Capital Markets, Derivatives and Insolvency Law Glossary including Islamic finance
Banking & Finance glossary A Auditing and Accounting Organisation for Islamic Financial Institutions (AAOIFI) The foremost Islamic, international, autonomous, independent, not-for-profit corporate body that develops and issues accounting, auditing, governance, ethics and Shari’ah benchmarks and standards for Islamic Financial Institutions (IFIs) and the wider Islamic finance sector. Founded in Bahrain in 1991, it is backed by a number of institutional members across more than 45 countries, including central banks and regulatory authorities, financial institutions, accounting and auditing practices, and legal firms. Its pronouncements are currently applied by leading Islamic financial institutions across the world and have advanced a progressive and gradual harmonisation of global Islamic finance practice. It also delivers professional qualification programmes—notably Certified Islamic Professional Accountant (CIPA), Certified Shari’ah Adviser and Auditor (CSAA), and the corporate compliance programme—in efforts to strengthen the industry’s human capital and governance frameworks. For further details, see Practice Note: Key participants in the Islamic finance industry—Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Acceleration Acceleration is the formal action...
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