In Europe there are more and more companies founded or owned by Chinese companies. When the European companies are doing business with them and the business volume is extremely large, the European companies may come up with the idea to request guarantee from the Chinese parent company of its business partner, in order to secure the performance of them.
Generally the idea could be a good protective measure. But as regard to the legal enforceability of so called parent company guarantee from China, the following points must be clarified:
- Due to the capital and the foreign currency controls in China, a Chinese company as guarantor in the aforementioned situation is not allowed to transfer any money across the Chinese border to a third country, if it doesn´t go through the registration procedure by the (SAFE).
- For the registration, the value of the guarantee must be fixed in the guarantee clauses besides the other basic information as the name of creditor and debtor (beneficiary of the guarantee), the amount of the debt (the contract value), the term of the underlying contract and the term of the guarantee. If the guarantee clauses only state the parent company shall guarantee the contractual performance of its subsidiary, they would unlikely be accepted by the SAFE, because it is unclear, how much money will flow out of China.
Therefore the requirement to register the parent company guarantee with SAFE must be fixed expressly as obligation of the debtor and its parent company. And the value of the guarantee must be defined in order to make it enforceable.
