Drafting Guaranties and Nonrecourse Carveouts in Commercial Finance Transactions

The loan guaranty agreement is often heavily negotiated but quickly forgotten after closing a commercial loan transaction--until the loan is in trouble. Enforcement of loan guaranties can involve various issues, particularly in the context of a loan default or the borrower's bankruptcy.

Commonly litigated issues for personal guaranties include the validity of the agreement, waiver of defenses, the continuing nature of the guaranty, and whether it is revocable or a sham guaranty. Bad boy guaranties, which seek to attach recourse liability on guarantors for engaging in specified prohibited acts, have given rise to a separate body of litigation.

Bad boy guaranties triggered as a consequence of a bankruptcy filing have generally been upheld and borrower's counsel should make sure that recourse carveouts are drafted clearly and concisely in order to limit the borrower's recourse liability.

Listen as our authoritative panel of commercial finance attorneys discusses the enforceability of loan guaranties, potential liabilities and defenses, and best practices for both parties in drafting guaranty instruments and nonrecourse carveout provisions.

1. Contested loan guaranties and recent court decisions
2. Enforcement and liability issues from the lender's perspective
3. Defenses and liability issues from the guarantor's perspective
4. Impact in the context of bankruptcy
5. Drafting loan guaranties and carveout provisions

The panel will review these and other key issues:

• In what situations will lack of consideration be a viable defense to enforceability?
• What lender liability risks are inherent in dealings with a guarantor?
• What legal and business strategies can lenders employ to maximize their recovery?
• What has been the impact of bad boy guaranties in a distressed debtor's restructuring option?