A recent High Court judgment illustrates the benefit a well drafted guarantee can have for a lender at the time of enforcement of the security.
Since 2002 a major NZ bank (the Bank) had made various facilities available to a company borrower (the Company). In 2009 the Bank made arrangements for an overdraft account allowing the Company to borrow up to $425,000 (the Overdraft Facility). As part of each arrangement an individual director (S) provided a guarantee in relation to the Company's liabilities.
Over time, the Overdraft Facility was increased, despite the stated expiry date being 31 December 2009. In March 2011 the Company failed to meet the Bank's requirements in relation to the reduction of the Overdraft Facility, owing $429,655. Unable to obtain repayment of the outstanding amounts, the Bank appointed a receiver on 29 March 2012 and applied for summary judgment to recover the debt under the personal guarantee granted by S.
In dismissing the notice of opposition to the application for summary judgment, the High Court took into consideration the following factors:
- The guarantee was widely enough drafted to capture amounts not only presently owing but also those becoming owing in the future by the customer under any facility or instrument of any kind
- The guarantee contained explicit notice provisions warning the guarantor of his liability and providing that the guarantee was a continuing guarantee
- The guarantee stated that the Bank was entitled to stop, replace or refuse any banking arrangements given to the customer with or without the consent or knowledge of the guarantor.
Consequently S was liable for all indebtedness under the Overdraft Facility, including that incurred after 31 December 2009.