Comfort (Keepwell) Letters are considered to be non-legally binding, given only to provide a lender with comfort as to the intention of the parent company of a group. If the intention is to create a strict level of legal obligation on the parent company, suggest to use a guarantee.
A copy of the board resolutions approving the Letter of Comfort must be sufficiently capable of identifying the specific facilities or obligations, i.e. there must be no ambiguity which could enable the company to claim that it related to other facilities.
The document confirms that the Parent Company (Party 1) is aware of all facilities which will be provided to the subsidiary by the lender and the subsidiary will not be permitted to enter into liquidation or any arrangements without discharging its liability to the lender.
The Parent Company will do what is necessary to ensure the Borrower pays off any debts under the facilities, and they will not dispose of any shares in the Borrower which would result in the Parent Company having a minority/non-controlling shareholding without the Lender's written consent.
This particular letter of comfort creates a strict liability on the Parent Company.
This document should be carefully read by the Individual Borrower/Company and Lender.
Both parties should sign and return a copy, and once signed, both parties should get a copy. To avoid any future disputes, both parties may wish to have their signatures witnessed.
If either party wishes to amend the agreement in the future, both parties should agree to do so, and the original agreement and amendments should be recorded in writing and signed by both parties.
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