The most serious document most directors ever sign, and the one they read least carefully.
For most SME facilities in Malaysia, the bank will ask the directors to guarantee the company’s borrowing personally. It is close to standard, particularly where the company is young or the facility is unsecured. It is also the single document in the pack with the most serious consequences for you as an individual, and in our experience it is the one that gets the least attention at signing.
This explains what a personal guarantee does, what the common variations mean, and where there is occasionally room to negotiate. It is general information rather than legal advice. Before you sign a guarantee you should take independent legal advice on the actual document in front of you, because the wording varies between banks and the wording is what binds you.
You set your company up as a separate legal person, partly so that its debts are its own. A personal guarantee undoes that for the facility it covers. If the company does not pay, the bank can pursue you personally for the money, and it can do so against your house, your savings and your other assets.
That is the whole mechanism, and it is worth sitting with for a moment, because the protection you thought limited liability gave you does not apply to the debt you have guaranteed. Guarantees in Malaysia are governed by the Contracts Act 1950, and the courts treat them as ordinary commercial contracts. Signing one because it was in the pack and everyone signs one is not a defence.
Most bank guarantee forms are drafted so that the bank can come to you as soon as the company defaults, without first exhausting its remedies against the company or realising any security it holds. Directors frequently assume the guarantee is a last resort after everything else has failed. Read the document: it usually is not.
Where there are several directors, guarantees are almost always given jointly and severally. That phrase means the bank can recover the entire amount from any one of you, at its choice, rather than a share each.
So if there are four directors and the company defaults on RM800,000, the bank is not obliged to pursue RM200,000 from each of you. It can pursue the whole RM800,000 from whichever one of you is easiest to recover from, which in practice means whoever has the most visible assets. You would then be left to claim contribution from your fellow directors yourself, which is a separate action, at your own cost, against people who may by then have nothing.
If you are the director with the property in your name and your co-directors are not, understand that you are carrying materially more risk than they are from the same signature.
Guarantees come in two broad shapes and the difference is substantial.
A specific guarantee covers one identified facility. When that facility is repaid, the guarantee has done its job.
A continuing guarantee, often described as an all monies guarantee, covers whatever the company owes the bank from time to time, including facilities granted later that you may not have been consulted about. It does not expire when the original loan is repaid. It sits there, covering the relationship.
Most bank standard forms are continuing. This is the clause that catches people out years later, when a facility they had forgotten about turns out to be covered by a guarantee they signed in 2019 for something else entirely.
Sometimes, and it is worth checking rather than assuming. A guarantee may be limited to a stated amount, or it may be unlimited. Where it is limited, check carefully whether the cap covers only principal, or whether interest, default interest, legal costs and recovery costs sit on top of it. A cap that excludes costs is not the cap you think it is.
Where a facility is RM500,000 and you are asked to guarantee without limit, that is a question worth raising.
Resigning as a director does not release you from a guarantee you have already given. This is probably the most expensive misunderstanding in this whole area.
The guarantee is a contract between you and the bank. Your relationship with the company is not what makes it binding. If you leave a business, sell your shares and walk away, you remain liable under that guarantee until the bank formally releases you in writing.
Release is not automatic and it is not owed to you. The bank will consider it, and will usually want either the facility repaid, or a replacement guarantor it finds acceptable, or additional security. If you are exiting a company, dealing with your guarantees is part of the exit, and it needs to happen before you sign anything else, not afterwards. Get the release in writing and keep it.
The existence of a guarantee is rarely negotiable on an SME facility. Some of its terms occasionally are, particularly where the bank wants the business and the company’s position is reasonable. The points worth raising:
You are unlikely to get all of these. Asking costs nothing and occasionally gets one of them, and even where nothing changes you will at least know exactly what you have signed. The time to ask is before the letter of offer is accepted, not after.
Read the guarantee itself rather than the summary of it. Check whether it is continuing or specific, whether it is capped, whether the cap includes costs, and whether it is joint and several. Confirm what the bank must do before calling on it. Ask what release would require. And take independent legal advice, meaning a lawyer acting for you rather than the one acting on the facility for the bank.
None of this is a reason not to borrow. Guarantees are ordinary in SME lending here and a sound business servicing a sensible facility will never hear about them again. It is a reason to know what you have signed, which is a different thing. If you want a second reading of a letter of offer before you accept it, ask us. We will tell you what the terms mean. We are not lawyers and we will say so where the answer needs one.
Occasionally, where the company is well established, the facility is fully secured on assets the bank is comfortable with, or the borrowing is small relative to the company’s balance sheet. For most SME facilities, and particularly for unsecured or partly secured lending to a younger company, the bank will treat it as a condition rather than a preference. Where a guarantee is genuinely unavoidable, the useful conversation is about its terms rather than its existence.
A specific guarantee does. A continuing or all monies guarantee does not, and most bank standard forms are continuing. It keeps covering whatever the company owes the bank, including facilities taken later. Check which one you signed, and if you want it to end, ask for a written release.
Almost certainly yes, unless the bank released you in writing. Resignation ends your role in the company but not a contract you made with the bank. If you have left a business and never dealt with your guarantees, find out now what is still outstanding rather than when a demand arrives.
That is a decision for them with independent advice, not one to take casually as a formality. Signing makes them personally liable for a business debt they may have no control over and no visibility of. Where a bank asks a non-director to guarantee, it is usually because it wants access to an asset in that person’s name, and understanding which asset and why is the starting point.
If you want to work out what this means for your own application rather than in general, that is what the first conversation is for. It costs nothing and we will tell you if the answer is that you are not ready.
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