The effect of insolvency on guarantees

Guarantees are a key mechanism for creditors to obtain comfort for any indebtedness due to it from the debtor, particularly when there are concerns over the debtor's long-term solvency.

This guidance note explains that generally, if the guarantor has granted a guarantee for the borrower’s debt to the lender, and the borrower becomes insolvent, the liquidation of the borrower does not adversely affect the lender’s right to enforce the guarantee so granted. It also explains the operation of selected provisions of the Corporations Act 2001 (Cth) in the context of the impact of insolvency on guarantees.

See The effect of insolvency on guarantees.