Parent company guarantees and performance bonds are typically used in the construction and engineering industries to provide a developer with some security in the event that the contractor breaches the building or engineering contract or, in some circumstances, upon the contractor's insolvency.

In the current economic climate, contractor default is, unfortunately, even more prevalent in the construction and engineering industries, and so the issues surrounding parent company guarantees and performance bonds are very much in focus for developers.

Background

Over the past year the Courts in Scotland have been tightening up their procedures in relation to the granting of extensions in administration. This note sets out the various issues that have arisen and considers the best ways to ensure that applications of this type proceed without unnecessary costs.

For lawyers dealing regularly with commercial secured lending, the requirement to register company fixed and floating charges has long been fraught with tension. It is a commercial necessity for charges over a company's assets to be registered in a publicly available register. Prospective creditors need to be able to establish how far the company's assets have been secured and are available to meet its commitments. Failure to register will result in the charge being invalid against any liquidator, administrator or creditor of the company if the company becomes insolvent.

In an important decision for commercial property landlords, the High Court in Prudential Assurance Co Ltd and Others v PRG Powerhouse Limited and Others has ruled that a CVA (defined below) cannot operate so as to prevent landlords from enforcing a parent company guarantee. The Court's decision however was reached on the basis that to determine otherwise would have been "unfairly prejudicial" to the landlords.