Can one Company Act as a Guarantor for the Other ?. According to the Egyptian law Companies cannot guarantee another Company unless it is stipulated in another Company's Articles of Association that it can participate in any manner with Entities carrying out activities similar to the Company's activities, or which may contribute the fulfillment of the Company's activities.
Accordingly, the Companies conclude a Suretyship Contract, whereby a person guarantees the performance of an obligation by giving an undertaking to the Creditors to fulfil such obligation should the debtor fail to do so. The Egyptian Civil Code governs the Suretyship Contracts.
Elements of the Suretyship Contract
- The Suretyship must be written, even if the principal obligation can be established by oral evidence;
- The Surety must be solvent and resident in Egypt;
- Suretyship is valid only if the obligation to which it applies is valid;
- Suretyship may be entered into in respect of a future debt, if the amount for which the guarantee is given is fixed beforehand, in this case if the future debt does not have a fixed duration of such guarantee, the Surety can revoke his guarantee at any time provided that the debt has not been created yet. Suretyship may also be entered into in respect of a conditional liability;
- Suretyship cannot be entered into in respect of a sum greater than that due by the Debtor, nor can it be subject to more onerous conditions than the debt guaranteed. However, the Suretyship may be entered into in respect of a smaller sum and subject to less onerous conditions.
- In the absence of an express agreement, suretyship extends to the accessories of the debt, to the expenses of the first claim for payment and to the expenses incurred after notice has been given to the Surety.
The Effects of the Suretyship
Relationship between the Surety and the Creditor
The Surety is discharged in the following cases:
- Simultaneously with the discharge of the Debtor, and is entitled to abide all the defenses and objections that are claimed by the Debtor. However, if the defense raised by the Debtor is based on his lack of legal capacity, the Surety who was cognizant thereof at the time the contract was entered into, therefore, such defense cannot be claimed with.
- If the Creditor has accepted a thing of another kind in payment of the debt, even if such thing is entitled to the Surety.
- Surety is discharged to the extent of the value of any warranties which the Creditor has lost by his own fault. Warranties, hereby means the securities assigned to guarantee the debt, even if they were provided after the Suretyship was entered into; also, any securities provided in accordance with the law.
- If the Creditor does not take proceedings against the Debtor within six months from the date of the notice sent by the Surety, unless the Debtor provides an adequate guarantee to the Surety.
- The Creditor is bound to hand over to the Surety, at the time of the discharge of the debt, all documents that are necessary to enable him to recourse against the Debtor. If the debt is secured by a pledge of a movable or by a right of retention on a movable, the Creditor must handover such securities to the Surety. However, if the debt is secured by a charge on an immovable property, the Creditor must comply with the formalities required for the transfer of such security. The expenses of such transfer are borne by the Surety, which can be restituted from the Debtor.
- The Creditor cannot take proceedings against the Surety, unless he has taken proceedings against the Debtor at first.
- If there are several Sureties for the same debt by one contract and the liability was several, the debt will be divided between them and the Creditor can take legal procedures against each of the Sureties to the extent of their shares. However, if several Sureties have undertaken to guarantee the same debt by successive contracts, each Surety is liable for the whole debt, unless he has agreed to divide the debt.
- The Surety who is jointly liable and the Surety who is severally liable can abide all the defenses of the Debtor.
- If there are several Sureties, who are jointly liable, and one of them paid the whole debt on maturity, he may recourse against each of the other sureties to pay his share of the debt.
Relationship between the Surety and the Debtor
- The Surety must notify the Debtor before paying, otherwise the Surety cannot recourse against the Debtor if the latter has paid the debt or has grounds, at the date of maturity, for having the debt declared void or extinguished. However, if the Debtor did not object the payment, the Surety can recourse against the Debtor, even though the Debtor had paid the debt or had grounds for having the debt declared void or extinguished.
- The Surety who has paid the debt is subrogated to all the rights of the Creditor against the Debtor; if however, he pays only part of the debt, the Surety can only exercise such rights in respect of that part he has paid only after the Creditor has recovered from the Debtor the whole due debt.
- The Surety who has paid the debt has a right to recourse against the Debtor in claiming the whole amount of the debt, interest and expenses. The Surety, however, only has a right of recourse in respect of those expenses, which he has incurred from the date he has notified the principal Debtor of the proceedings taken against him. The Surety is entitled to interest at the legal rate on all amounts that he has paid from the date of payment.
- If there are several Debtors jointly liable for the same debt, the Surety who has guaranteed them all, has a remedy against each of them for all that he has paid in respect of the debt.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.