Q&As

In what circumstances do I really need to worry about commercial (or corporate) benefit?

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Produced in partnership with Brian Cain
Published on: 18 July 2018
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This Q&A explains when it is necessary to analyse whether an obligor in a banking Transaction is receiving a commercial benefit (also called a corporate benefit) for participating in the transaction and why that might be important.

For an explanation of how this matter arises in connection with guarantees which is the most common context in which the issue of commercial benefit arises in finance transactions, see Practice Note: Guarantees—commercial benefit.

Summary

Assessing whether an obligor in a finance transaction is receiving a commercial benefit is necessary where guarantees, third-party security or some other form of co-payment obligation is imposed on a party and that party is not the recipient of any funds being advanced either directly or indirectly eg by way of the borrower on-lending the money advanced to it.

A lack of commercial benefit can invalidate a transaction or lead to it being challenged by shareholders or an insolvency officeholder.

Consequences of lack of commercial benefit

If a company enters into a transaction

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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
IA definition
What does IA mean?

See Investment Association.

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