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Issue 15 - Spring 2013

Case studies


This is a collection of case studies that have appeared elsewhere in this edition of the Circular. It includes the two case studies from the FOS Approach document that demonstrate the types of guarantor disputes we can consider, and the types of things we take into account when we look at whether a financial services provider fulfilled its obligations when it accepted a guarantee. You can read more about our approach to this and other issues by visiting More case studies are available on our website at

Guarantee for a company’s debts

A small business defaulted on its repayments. The FSP took possession of the company’s assets and then sold them, which resulted in a shortfall of $100,000. The company was then placed in liquidation and the FSP claimed the shortfall debt from the guarantor, Mr B.

Mr B had concerns about the way the FSP had sold the company's assets, and lodged a dispute at FOS.

Even though the company borrower was in liquidation, we decided that the guarantor was entitled to lodge a dispute alleging that the FSP had failed to comply with its duties as a mortgagee in possession when it sold the company's assets. We decided this because in the circumstances, it would have been unfair to allow the creditor to recover the debt under the guarantee without considering this part of the dispute.

After we asked the FSP to give us more information about the process it followed when it sold the company's assets, the FSP decided to abandon its claim against Mr B.

Guarantor’s remorse

Charlie’s friend wanted a personal loan in order to purchase a popular restaurant and cafe in the city, and he asked Charlie to be a guarantor. Charlie obtained a copy of the relevant documents (including the proposed guarantee) from the FSP, and sought independent financial and legal advice. After a few days, Charlie signed the guarantee and provided the FSP with security over his home.

Charlie’s friend’s business failed after running up debts of $250,000 and Charlie’s guarantee was called on to cover his friend’s debts.

Charlie regretted his decision to sign the guarantee and refused to acknowledge any liability. He lodged a dispute at FOS.

We found that the FSP had:

  • given Charlie sufficient notice about seeking independent legal and financial advice and about the financial risks involved in providing a guarantee
  • given Charlie sufficient information about the credit facility
  • given Charlie a copy of the credit contract and guarantee, and
  • given Charlie sufficient time in which to consider all the information relevant to the guarantee.

On this basis, we determined that Charlie was liable for the full amount of the guarantee. A guarantor is not able to avoid liability simply because they later regret the decision to sign the guarantee.