Practical Law Glossary Item 0-383-6200 (Approx. 2 pages)
Glossary
Net Worth Guaranty
A clause which limits the amount of a guaranty, usually to 80% to 95% of a guarantor’s fair market net worth for the purpose of avoiding fraudulent conveyance liability. Such liability may result if the guarantor does not receive equivalent value in return for its guaranty of a borrower’s debt. This clause is often included in upstream guaranties and cross-stream guaranties. It is usually not included in downstream guaranties because parent companies are generally presumed to receive equivalent value for their guaranty since they are a stockholder of the borrower. The value of a net worth guaranty can fluctuate as the guarantor’s net worth is periodically calculated.