I signed a personal guarantee for a company loan and the bank is suing me. What are my defences?

Years ago you signed a guarantee so that your company, your sibling or your friend could get a loan. Now the borrower has defaulted and the bank's lawyers have sent you a writ. Here is what the law says about guarantors.

What a guarantee is

A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person (the principal debtor) if they default. The person giving it is the surety (section 79, Contracts Act 1950).

The surety's liability is co-extensive with the principal debtor's, unless the contract provides otherwise (section 81). In practice, bank guarantees are usually written so that you can be sued on demand, without the bank first suing the borrower or selling the security.

Possible defences

• Variation without consent: any variance in the loan terms made without your consent discharges you as to later transactions (section 86).
• Release of the borrower: a contract releasing the principal debtor, or an act or omission of the creditor that discharges the debtor, discharges you (section 87).
• Impairing your remedy: if the creditor does something inconsistent with your rights, or fails in a duty to you, and your eventual remedy against the borrower is impaired, you are discharged (section 92).
• Loss of securities: you are entitled to the benefit of the creditor's securities, and are discharged to the extent of their value if the creditor loses them or parts with them without your consent (section 94).
• Contract defences: the document was not properly executed, you signed under misrepresentation or undue influence, or the demand or amount is wrong.

Many bank guarantees contain clauses where you consent in advance to variations and releases. The wording matters greatly.

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The summary judgment risk

Banks often apply for summary judgment under Order 14. A guarantor needs a defence with real substance, supported by documents, to obtain leave to defend.

If you pay

• You are subrogated to all the rights the creditor had against the borrower (section 93).
• The borrower must indemnify you for sums rightfully paid (section 98).
• Co-guarantors are generally liable to contribute equally (section 99).

Bankruptcy and guarantors

Under the Insolvency Act 1967, a creditor cannot bring bankruptcy proceedings against a social guarantor, and needs the court's leave for other guarantors, after showing it has exhausted modes of recovery against the borrower. The definition of social guarantor is narrow; see guarantors and bankruptcy.

What to do now

1. Do not ignore the writ; enter appearance and file a defence on time.
2. Gather the guarantee, the loan agreement, any variations, statements of account and correspondence.
3. Check what has happened to the securities, such as charged property.
4. Consider negotiating a settlement, especially where the borrower's assets can be realised.

Example

A Penang businesswoman guaranteed her brother's company loan of RM500,000. Without telling her, the bank later increased the facility and extended the term. When the company defaults, she relies on section 86 and the absence of an effective consent clause for the increased amount.

Common mistakes

• Assuming the bank must sue the borrower first.
• Ignoring the writ.
• Not reading the consent clauses in the guarantee.
• Forgetting rights against the borrower and co-guarantors.

When to speak to a lawyer

As soon as you receive a demand or writ as guarantor. See civil litigation or contact us.

Frequently asked questions

Can the bank sue me while the property is still not auctioned?

If the guarantee allows it, yes. The value of securities may still matter to the amount ultimately owed.

I was only a director when I signed. Does resignation help?

No, unless the guarantee says it ends on resignation or you validly terminated it for future advances.

Can I settle for less?

Banks often negotiate, particularly where recovery is uncertain. Put any settlement in writing.

Sources & fact check

Legal points in this article were checked against the primary sources below. The law can change; this is general information, not legal advice.

1. Contracts Act 1950 (Act 136), AGC Laws of Malaysia
2. Insolvency Act 1967 (Act 360), AGC Laws of Malaysia
3. Rules of Court 2012 (P.U.(A) 205/2012), text published by the Malaysian Bar, including Orders 12, 13, 18, 19 and 93

Fact-checked on 17 Oct 2026