Parent company guarantee under Swedish law

What is a parent company guarantee?

A parent company guarantee is a written undertaking under which a parent company assumes responsibility for specified obligations of its subsidiary. It may cover payments, deliveries, or other performance required under an identified agreement.

These guarantees are commonly requested when a subsidiary is newly established, has limited assets, or enters into a transaction in which the other party requires additional security. They may be used in connection with:

• supply and cooperation agreements
• loans and other credit arrangements
• commercial leases
• construction and service contracts
• long-term or high-value commercial relationships.

The parent company’s liability depends on the wording of the guarantee. The document should therefore identify the covered obligations and the circumstances in which a claim may be made.

What should the guarantee contain?

A parent company guarantee should identify:

• the parent company providing the guarantee
• the subsidiary whose obligations are covered
• the beneficiary
• the underlying agreement or obligations
• any maximum liability amount
• whether interest, damages, and costs are covered
• the circumstances in which a claim may be made
• the required form and deadline for a claim
• the effective date and expiry provisions
• the governing law and dispute resolution procedure.

The document should also state whether the beneficiary must first pursue the subsidiary or may claim directly against the parent company. This affects when the parent company’s liability can be enforced.

Scope and duration of the guarantee

A guarantee may cover one obligation, several obligations under an agreement, or liability up to a specified maximum amount. An unlimited or unclear guarantee can expose the parent company to substantial and unpredictable liability.

The guarantee should be coordinated with the underlying agreement. Its wording should explain how amendments, extensions, renewals, and additional obligations affect the parent company’s undertaking.

The parent company should also confirm that the guarantee has been properly approved and signed. The transaction may require assessment under Swedish company law, taking account of the company’s business purpose, financial exposure, and the interests protected by the Swedish Companies Act.

An issued guarantee cannot generally be withdrawn unilaterally contrary to its terms. Any right to terminate or limit future liability should be stated expressly.