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The Guarantee and Collateral Agreement is a fundamental security document used in Pakistani financial and commercial transactions when one party (the guarantor) agrees to guarantee the obligations of another party (the principal debtor) while also providing specific assets as collateral. This document is particularly important in corporate lending, project finance, and other commercial arrangements where additional security is required beyond the primary obligor's commitments. The agreement must comply with various Pakistani laws including the Contract Act 1872, Transfer of Property Act 1882, and relevant banking regulations. It typically includes detailed provisions regarding the scope of the guarantee, description and maintenance of collateral, enforcement mechanisms, and the rights and obligations of all parties involved. The document is crucial for financial institutions managing credit risk and for businesses seeking to secure financing arrangements in Pakistan.

1. Parties: Identifies all parties to the agreement including the guarantor, beneficiary (typically a lender), and principal debtor

2. Background: Explains the context of the guarantee and security arrangement, referring to the underlying facility or obligation being guaranteed

3. Definitions and Interpretation: Defines key terms and establishes interpretation principles for the agreement

4. Guarantee: Sets out the core guarantee obligations, including scope, nature (continuing/one-off), and limitations

5. Security Interest: Creates and defines the security interest over the collateral

6. Representations and Warranties: Statements of fact and assurances from the guarantor regarding their capacity and the collateral

7. Covenants: Ongoing obligations of the guarantor regarding maintenance and preservation of the collateral

8. Events of Default: Circumstances that trigger enforcement rights under the guarantee and security

9. Enforcement: Rights and procedures for enforcing the guarantee and realizing the security

10. Payments and Recoveries: Provisions regarding payment mechanics, currency, and application of recoveries

11. Power of Attorney: Appointment of the beneficiary as attorney to perfect or enforce security

12. Assignment and Transfer: Provisions regarding transfer of rights under the agreement

13. Notices: Communication procedures between parties

14. Governing Law and Jurisdiction: Specifies Pakistani law as governing law and jurisdiction for disputes