Giving Guarantee(s) to the Bank

Guarantees are frequently sought by banks and other lenders from directors and proprietors (such as the parent company) of the borrowing company to support borrowings which are not covered by that company's own resources. If these guarantees are given, the guarantor must repay any indebtedness which the borrowing company cannot.

If you are asked to act as a guarantor, the key points for you to consider as against the bank include specifically identifying the indebtedness you are guaranteeing, your maximum liability and your ability to withdraw the guarantee.

As against the borrowing company, you should consider whether it is obliged to repay the debt as soon as it has surplus funds and whether indebtedness to the bank can be increased or altered without your consent.

If you are one of a number of co-guarantors, try to limit your liability to a share of the total. If you cannot and you are jointly and severally liable with the other guarantors, you should decide how liability is to be divided between you and the other guarantors, e.g. in proportion to your respective interests in the company. Even where the bank insists on you all being jointly and severally liable you should ensure that those guarantors pursued for payments are appropriately reimbursed by those who may not be pursued.

If you are anxious about giving such a guarantee, you may consider taking professional advice about any opportunity to minimise personal exposure by a legitimate redistribution of your assets.