USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
guarantor to comply with the statute of frauds. However, showing direct corporate benefit to the guarantor is not necessary to determine suffi - ciency of consideration where the intercorporate guarantee benefits the group as a whole. The US does not generally have any restrictions on “financial assistance” that would prohibit provid - ing guarantees or security to support borrowings to finance the acquisition of a target company. In insolvency proceedings, corporate benefit consideration is relevant to determine whether the guarantee can be challenged as a fraudulent transfer under the US Bankruptcy Code. Under fraudulent transfer analysis, a transfer of an inter- est in property of the debtor may be voidable if: • made with actual intent to defraud or deprive creditors of value; or • made: (a) when the debtor is insolvent or that ren- der the debtor insolvent; and (b) for which the debtor receives less than reasonably equivalent value. The company and the lenders will need to be comfortable with the solvency of the guarantors and security providers, requiring solvency repre - sentations to this effect. In addition, the estates of an entity subject to a Chapter 11 bankruptcy proceeding would have the right to pursue any claims of the debtor, including claims for breach of fiduciary duty claims against directors and officers, such as for the approving of fraudulent transfers (to the extent available under applica - ble law). In the case of upstream guarantees or other credit support from foreign subsidiaries in sup - port of the indebtedness of a US debtor, deemed dividends may apply under US federal tax law. Since 2019, limited tax law reform has reduced
the impact of upstream guarantees and other credit support from non-US subsidiaries. Notwithstanding the positive tax reform open - ing the door to more non-US credit support, as a general matter and except in rare occasions where it is critical from a credit perspective, non- US upstream guarantees and credit support are often excluded outright from the guarantee and collateral package of US debt financings, pri - marily on cost and complexity grounds. 5.4 Restrictions on the Target The US does not generally have any restrictions on “financial assistance” that would prohibit pro - viding guarantees or security to support borrow - ings to finance the acquisition of a target com - pany. However, there may be regulatory issues to consider when the guarantee or security pro - vider is a specialised or regulated entity. 5.5 Other Restrictions The US is a flexible jurisdiction from the perspec - tive of “financial assistance” by the target, and no whitewash is necessary. No governmental approval is generally required for providing guar - antees or security, although exceptions exist for highly regulated entities. US law does not have a concept of “hardening,” but transfers, includ - ing creation or perfection of a security interest, on account of an antecedent (pre-existing) debt made within the 90 days prior to a bankruptcy fil - ing when the debtor was insolvent, are voidable if they permit the creditor to receive more than they would in a hypothetical liquidation under Chapter 7 of the US Bankruptcy Code. The 90-day period is extended to one year for “insid - ers”. There are a variety of statutory defences and safe harbours to preference claims. US law does not generally recognise retention of title transactions and will instead recharacterise
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