Guarantee Facility Agreement Template for Indonesia

A Guarantee Facility Agreement is a legally binding contract that provides financial security for business transactions in Indonesia. This document establishes the framework under which a guarantor commits to fulfilling the obligations of a principal debtor if they default, offering crucial protection for beneficiaries in commercial dealings.

When do you need this document?

You need a Guarantee Facility Agreement when entering into significant commercial transactions that require financial assurance. Construction companies often use these agreements when bidding for large infrastructure projects, as project owners require performance guarantees. Import-export businesses rely on these documents to secure trade finance facilities and provide payment guarantees to international suppliers. Corporate lending arrangements frequently require guarantee facilities when banks need additional security for loan facilities. Joint venture partnerships use these agreements when one party needs to guarantee the performance obligations of another partner.

Key legal considerations

The agreement must clearly define the scope and limitations of the guarantee, including maximum liability amounts and specific obligations covered. You should carefully review the conditions precedent that must be satisfied before the guarantee becomes effective, such as execution of underlying contracts or compliance with regulatory requirements. The document should specify the procedures for making demands under the guarantee, including required documentation and notification periods. Consider including provisions for partial releases of the guarantee as underlying obligations are fulfilled. The agreement must address the rights of the guarantor to seek indemnification from the principal debtor and any security interests that secure this indemnification obligation.

Legal requirements in Indonesia

Under Indonesian law, Guarantee Facility Agreements must comply with the Indonesian Civil Code provisions governing contracts and guarantees. The document requires proper execution by authorized representatives with sufficient corporate authority, typically evidenced by board resolutions and specimen signatures. Bank Indonesia regulations under Law No. 7 of 1992 on Banking govern guarantee facilities provided by financial institutions, requiring compliance with prudential banking principles. The agreement must be drafted in Indonesian language to ensure enforceability under Law No. 24 of 2009, though bilingual versions are commonly used for international transactions. Corporate guarantors must obtain proper board approvals and ensure compliance with their articles of association regarding guarantee authority. The document should include appropriate witness signatures as required under Indonesian notarial practices for significant financial commitments.