GUARANTEES IN DEBT COLLECTION - Presented by : Chloe Jolliffe - NZCFI
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GUARANTEES IN DEBT
COLLECTION
Presented by : Chloe Jolliffe 12 February
2019
Agenda
• Who takes guarantees?
• Why have a guarantee?
• What do we need to include in a guarantee to make it enforceable?
• What are the applicable terms?
• Some important things to remember.
www.anthonyharper.co.nz
Who takes guarantees?
• Financiers will generally take guarantees when they are lending to
non-personal parties i.e. trusts or companies.
• Very common in usual bank lending situations.
• Anyone who grants credit to a non-personal entity should consider a
guarantee.
www.anthonyharper.co.nzWhy take a guarantee?
• Look at who has the assets?
• If the company/borrower has no assets and does not pay you, you
are a complete unsecured creditor.
• Cf. Having a guarantee from the controlling parties
– Most likely to have assets
– Recourse against these assets
– Accountability for debts
www.anthonyharper.co.nzWhat does a guarantee need to look like?
Section 27 of the Property Law Act 2007 applies to all post 1
January 2008 guarantees. This section prescribes that a
guarantee must:
• Be in writing;
• Be signed by the guarantor;
• Comply with usual contractual principles;
• Consideration must be stated, unless the guarantee is expressed as
being a deed. Consideration is essentially “value given by both
parties”.
• The guarantee itself does not have to be in a separate deed, unless
that is contemplated by the underlying agreement.
– Deed requirements: Witnessing.
www.anthonyharper.co.nzRelevant terms to consider including in a
guarantee
• Principal liability
• Guarantee not to be affected by any indulgence given to the
borrower
• Joint and several liability
• What is the guarantor guaranteeing? Everything or is it limited?
• How long is the guarantee for?
• Safeguard against the guarantee being discharged in the event of a
variation of the underlying contract.
• Independent advice
www.anthonyharper.co.nzSpecial considerations
Make sure the guarantee provisions are correctly signed – this
can be tricky when you have a personal guarantor who is also
the director of the borrower and where the guarantee is not
contained in a separate document …
www.anthonyharper.co.nzRavensdown Fertiliser Co-Operative Limited
v Eveleigh [2012] NZHC 660
• Farming company applied for trade credit. One page application form
– application on front, terms on back
• Front page – application itself and a signing and acknowledgment
box (2 signing spots):
www.anthonyharper.co.nzRavensdown Fertiliser Co-Operative Limited
v Eveleigh [2012] NZHC 660
• Back page – terms and conditions, including a guarantee provision
(which was titled in bold)
– “We the Directors of the Company agree to guarantee all amounts
which are payable to you at any time by the Company and
acknowledge that you may demand and recover from us any
amounts which are payable by the Company instead or as well as
demanding payment from the Company.”
No requirement to sign under the guarantee provision – directors
argued that they hadn’t agreed to the guarantee.
www.anthonyharper.co.nzRavensdown Fertiliser Co-Operative Limited
v Eveleigh [2012] NZHC 660
Had the directors signed in dual capacity i.e. to bind the
company to the terms as guarantors?
• Ravensdown claimed the debt against the directors pursuant to the
guarantee. Directors said that they did not read the back page, they
did not know about the guarantee and that they signed the
application form as directors of the Company, not as guarantors.
• Ravensdown’s position was that the guarantee provision constituted
a personal obligation on the part of the Eveleighs, that the Eveleighs’
failure to read the terms did not affect the validity of the guarantee
and that the Eveleighs had signed the application in a dual capacity
i.e. both as directors of the Company and personally.
www.anthonyharper.co.nzRavensdown: Did the directors sign in dual
capacity?
High Court said “yes”
• Taking an objective interpretation of the application form – look at
the “signing and acknowledgement”
• The reverse provided the guarantee as a term of the intended
contract – the front makes it clear that the directors agree to comply
with the terms and conditions of the contract on the reverse of the
form.
• Didn’t matter that they hadn’t signed twice (i.e. once as company
agreeing to credit and secondly as directors agreeing to guarantee)
www.anthonyharper.co.nzWhat if someone orally agrees to guarantee
or emails to confirm a guarantee?
www.anthonyharper.co.nzNew Zealand Life Care v Official Assignee
[2018] NZHC 17
• Bankrupt said that he had guaranteed debts owing by his company
to NZ Life Care
• Life Care filed a proof in his bankruptcy – Official Assignee rejected
saying that there was no enforceable guarantee
• Facts
– First – oral guarantee – agreed but not enforceable
– Second – email where bankrupt said that he was willing to give a
guarantee. Not enough – parties had already prepared a separate deed
that was not executed. Showed an intention to give a separate
guarantee.
– Email – was his electronic signature enough to mean that the guarantee
was in writing and signed? Court said maybe, but there was no
consideration, and emails could not be construed as a deed.
www.anthonyharper.co.nzProper signing
www.anthonyharper.co.nzKung v DVD Advance Ltd [2018] NZHC 3319
• Kung landlord, DVD tenant, Ferguson director of DVD
• Agreement to lease signed – no space on this form on the front page
for the name of a guarantor. Ferguson signed front page twice, once
for DVD and then under the statement "guarantee by Daniel
Ferguson".
• Agreement said :
– that the tenant would enter into a formal lease;
– where the tenant was a company and if the landlord required it, the tenant would
arrange for its shareholders to guarantee the obligations of the tenant. No other
reference to a guarantee in this agreement.
• No formal deed of lease (which contains a guarantee) entered into
by the parties.
www.anthonyharper.co.nzKung v DVD Advance Ltd [2018] NZHC 3319
• No guarantee terms ever expressed but Kung argued that liability
arises under the agreement to lease
• Court said the agreement showed an intention to guarantee of
Ferguson to guarantee the obligations of DVD.
• Court also looked and said that the requirements of s27 had been
complied with.
www.anthonyharper.co.nzDuress / undue influence
www.anthonyharper.co.nzDuress / undue influence
• A common argument raised by guarantors is that they have been
unduly influenced/ signed the guarantee under duress. This means
that improper influence has been exerted over them.
• Look at who your guarantor is:
– Guarantor with no real tie to the borrower may have a stronger
argument for duress – no financial interest in the venture;
– Emotional tie to the borrower – is it an elderly family member?
Someone who may not actually really understand what is going
on
– Does the guarantor have some commercial nous?
– GUARANTOR TO GET INDEPENDENT ADVICE
www.anthonyharper.co.nzQuestions
www.anthonyharper.co.nzPresented by Chloe Jolliffe
Chloe Jolliffe
Senior Associate
Tel: +64 3 364 3807
Mobile: +64 27 406 1035
Email: chloe.jolliffe@ah.co.nz
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