By Robert Edgar, Liz Sweeney

In 2017 the ICAEW and ICAS suggested that an upstream or cross-stream guarantee might amount to a distribution of profits unless a fee was payable in return for the granting of the guarantee. The suggestion, in their joint guidance on Realised and Distributable Profits under the Companies Act 2006 (Tech 02/17BL)) , understandably caused quite a stir, as distributions have important accounting and tax implications and must be made from distributable profits or distributable reserves in order to be lawful.

More recently, the Law Society of England and Wales and the City of London Law Society issued a joint response (the Joint Response) affirming the contrary: that a guarantee given in relation to a “normal financing transaction” does not constitute a distribution, whether or not a fee is payable. This was already the view commonly held among solicitors.