Chinese Parent Company Guarantees—Is Your Payment Guaranteed?
摘要
The use of a parent company guarantee (PCG) can be a valuable tool for securing the performance obligations of a counterparty to a contract. A PCG is often used in the construction industry where parent companies give guarantees to bolster the financial credibility of their subsidiary contractor companies. PCGs are often used in commercial contracts for the sale of goods to insure payment obligations. PCGs are frequently offered as security by Chinese companies in transactions offshore. PCGs will continue to be used as a form of security as Chinese companies go abroad. China’s Belt and Road Initiative (BRI) has already begun to see huge amounts of offshore investment and cooperation. With each BRI project comes the uncertainty of financial exposure and a risk of cross-border disputes. The PCG is often proffered as the way to minimize risk. You need to understand what you bargain for in entering a PCG and insure that the PCG’s terms address the nuances of the law and practice in relation to on-demand PCGs in China. Creditors need to understand the law and practice surrounding on-demand parent company guarantees in China. The purpose of an on-demand PCG is quick satisfaction of a debt owed. For now, in China, this expectation might be difficult to realize without a well-considered strategy.
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