In the previous article (located in the February 2022 edition of CBD News), I discussed Sexually Transmitted Debt (STD), and the consequences of joint borrowings.

Now it is time to talk about the difference between guarantees and indemnities!

Be very careful! A guarantee means a demand must be made by the borrower to the lender, and generally the borrower must default over it or be sued by the lender. If the lender does not recover the loan, then your guarantee is liable. However, an indemnity effectively means the lender can pursue the person’s indemnities that occur without the borrower first defaulting.

The best you can hope for is to not have to make any payments, while at the same time, deriving no direct benefit. Quite often, you have no control over the events which may make you liable under the guarantee and the indemnities. In short, there is really no upside to the huge risk.

To those who have unfortunately already been infected by an STD, and the condition was a contributing factor to your relationship’s demise, my sympathy goes out to you. I do suggest you immediately seek advice on the best course of action to limit your continuing exposure and, if possible, terminate it. There are situations where the terms of the loan have been varied without the consent or knowledge of the guarantor. In some situations , this can prevent the lender relying on your guarantee.

For those who find themselves in a position where they cannot escape the temptation of exposure, let me tell you this…the fact is that lenders are reluctant to let go of anyone when an outstanding debt exists. From their point of view, the more people they can look to in the event of non-payment, the merrier it is likely to be!

You will all have heard the stories about parents losing their house or farm as a result of providing a personal guarantee for one of their children who was setting up a sure-fire business, which then failed to fire surely. I alarm you that these events are not stories, but true events. They really do happen.

One of our most eminent Judges, now deceased, was made bankrupt as a result of a personal guarantee given to an oil company to support his parents’ business. They tend to be even less sympathetic than banks, if you can believe that!

If you must provide a guarantee, or sign for an indemnity, firstly go chant “a guarantor is a fool with a pen” again, and have a long hard think about it. If, for some overwhelming reason, living stress free has no appeal, or you choose not to tread a lotus strewn path, then please seek legal advice before signing.

You must try to find any possible ways to limit your exposure as best you can.

It’s an unpleasant question to have to consider, but do you have someone you can trust in the event of being placed on life support? In the next article, I will look at Powers of Attorney in their various forms.

Peter Nevile


Nevile & Co.