In a recent #aircraft financing deal, whereas a lot of questions of the lessor were soothed away, they were still concerned so much over the validity of the corporate guarantee provided by unrelated entities with respect to the corporate benefit.
Below is my brief discussion of the corporate benefit of granting a guarantee from Vietnamese law perspective.
Background brief
There is no statutory definition of interest of the company, corporate benefit, or commercial benefit in Vietnamese legal context. Enterprise law of Vietnam just sets out that the management positions must conduct their duties for the best and loyal to the interest of the company, and act against the abuse of power to benefit other organisations or individuals.
Does the guarantee require corporate benefit?
There is no issue of a corporate benefit for the guarantor to guarantee the principal debtor’s obligations. Vietnamese law defines a guarantee means where a third party (the guarantor) commits with the obligee (the creditor) to perform an obligation of the obligor (the principal debtor) if, when the obligation becomes due, but the principal debtor fails to perform or improperly performs the obligation. The guarantor is not required by local law to prove a corporate benefit for issuing such a guarantee against obligations of the principal debtor. Therefore, the guarantor may guarantee obligations of any unrelated third party and there is no requirement for a clear connection between the guarantor and the principal debtor in the aircraft financing deal structures. On no basis, the courts would neither find a guarantee without corporate benefit null and void, save for the cases prescribed in the bankruptcy law.
In light of the management’s duties discussed above, however, benefit absence may result in reverberations and the guarantee may be challenged.
Lack of benefit repercussions?
A lack of corporate benefit may bring about it being challenged by shareholders or the bankruptcy administrator. If any damage occurs, the guarantee’s signatory must remedy the damages.
In other cases, the court makes the position that the guarantee issued outside of the business ambit and within 6 months before the initiation of the bankruptcy proceedings, the guarantee will be voidable.
A resolution
Matters can get knotty indeed when a guarantee is being granted to an outsider, but this doesn’t mean that the benefit does not exist. This makes it increasingly helpful to have a record of raison d’etre.
Board/shareholders/members’ council resolution is of particular help when stating what the benefit will be to the guarantor company frankly.
Takeaway
There is unfortunately no precedent roadmap for maneuvering this matter in Vietnam. In the absence of a clear legal definition, criteria, and relevant case law, establishing the corporate benefit is quite complex work. The safe approach would be to, depending on the context of the transaction, state the benefit in the form of indirect advantages could be considered and documented in the board resolution. In order for a valid corporate benefit to be indeed generated, it should be noted that the guarantee provider benefits independently from the transaction.
