Deed of Guarantee Lawyers Adelaide: Director Guarantees, Execution and Enforcement
Deeds of guarantee in South Australia
When a company buys on credit or signs a services contract, the business on the other side often wants a director standing behind it. Talon Legal drafts deeds of guarantee for Adelaide suppliers, trades and service businesses, and advises directors and family members asked to sign one. Book a same-day free 30-minute consultation or call (08) 7094 2021.
Deed of guarantee key facts
| Issue | Position in South Australia |
|---|---|
| What it does | The guarantor promises that the company will pay and perform its obligations, and must pay or perform them on demand if the company does not. |
| Indemnity | A separate promise, usually in the same deed, to make good the beneficiary's loss. |
| Continuing guarantee | Covers each obligation as it falls due, until all are performed or the parties agree to end it. |
| When a document is a deed | For example, when it is expressed to be a deed, or its circumstances or nature show the parties intended a deed (Law of Property Act 1936 (SA) section 41(5)). |
| Individual guarantor | Signs or makes a mark, attested by at least one witness who is not a party (section 41(1)(a) and (2)(a)). |
| Company guarantor | Signed under section 127(1) and expressed to be executed as a deed (Corporations Act section 127(3)); no witness needed (section 127(3A)). |
| Delivery | Not necessary (Law of Property Act section 41(3); Corporations Act section 127(3B)). |
| Electronic signing | Allowed (Law of Property Act section 41(1)(d); Corporations Act section 127(3A)). |
| Defective execution | Valid if external evidence shows the party intended to be bound (section 41(4)). |
| Signed without reading | Generally binding, absent a vitiating element or a claim for equitable or statutory relief (Toll v Alphapharm at [57]). |
| A wife's guarantee | Unconscionable to enforce in the circumstances the High Court described in Garcia at [31]. |
| First step | Same-day free 30-minute consultation. Call (08) 7094 2021. |
Need a deed of guarantee lawyer in Adelaide?
Our deed of guarantee lawyers in Adelaide act for suppliers, trades and service businesses that take director guarantees, and for directors and family members asked to give them. A deed of guarantee secures a company’s obligations under trade terms, a credit account or a services contract by adding a person who must pay or perform if the company does not. The Law of Property Act 1936 (SA) and the Corporations Act 2001 (Cth) set the rules for signing it as a deed. This page states the law current to 6 November 2026.
This guide is part of our skilled trades and licensed industries practice. Related guides cover terms of trade and retention of title, subcontractor agreements, equipment hire agreements and service agreements and terms of business.
Free Consultation. Send us the deed before anyone signs it. Book a same-day free 30-minute consultation or call (08) 7094 2021.
On this page
- What does a guarantee and indemnity do?
- Why do suppliers ask for director guarantees?
- What should the deed say?
- Why is a guarantee given as a deed?
- How should an individual guarantor sign?
- How does a company sign a deed?
- Can a deed be signed electronically?
- Why do guarantors get independent legal advice?
- How is a guarantee enforced?
- How similar matters tend to play out
- How we act on deeds of guarantee
- Case law
- Frequently asked questions
What does a guarantee and indemnity do?
It puts a second person behind a company’s promises. The guarantor, usually a director, promises the business dealing with the company (the beneficiary) that the company will pay and perform its obligations under the main contract when they fall due. If the company does not, the guarantor must pay or perform on demand, as if it were the company.
A deed of guarantee and performance covers every obligation of the company under the named agreements, such as delivering services or completing work, as well as payment.
The indemnity is a separate promise, usually in the same deed, to make good the beneficiary’s loss. Well-drafted deeds include both, with a clause that the guarantor stays liable even if an obligation of the company proves unenforceable or is disclaimed by a liquidator. They also let the beneficiary call on the guarantor without first taking steps against the company or enforcing any security it holds.
Why do suppliers ask for director guarantees?
Because credit given to a small company depends on the company’s ability to pay. A director guarantee adds a person with assets of their own who must pay if the company does not. Common examples in the trades and service industries:
- A trade account, with a guarantee signed by each director when the account opens.
- A services or maintenance contract, where the client company’s director guarantees payment.
- A subcontract, where the head contractor takes a guarantee from the trade’s directors for completion and defects.
- An equipment hire agreement for high-value plant.
Ask for it when the account opens, when directors sign most readily.
A guarantee works alongside security over goods. A supplier that sells on retention of title terms should also perfect its security interest. If a company is wound up or an administrator is appointed, a security interest it granted that is unperfected at that time vests in the company immediately before the event (Personal Property Securities Act 2009 (Cth) section 267). The terms of trade and retention of title guide covers that step.
What should the deed say?
Exactly what is guaranteed, and what does not release the guarantor. The main terms:
- The guaranteed obligations: the main agreements by title, date and subject matter, and whether the guarantee covers every obligation under them or only payment.
- A continuing guarantee, in force until every guaranteed obligation is performed or the parties agree to end it, so it covers each invoice as it falls due.
- The guarantee and the indemnity, unconditional, irrevocable and payable on demand.
- A preservation clause. The guarantor stays liable despite time or indulgence given to the company, variations or renewals of the main agreements, the company’s insolvency, no notice of a default, and another intended guarantor never signing.
- Limits on the guarantor’s own rights: no competing with the beneficiary for the company’s assets, and no set-off, until the beneficiary is paid in full.
- Insolvency: authority for the beneficiary to prove in the company’s winding up, and revival of the guarantee if a payment the beneficiary received has to be repaid.
- Notices: the guarantor’s address and email, and when a notice sent each way is taken to be received.
- Costs: who bears the costs of preparing the deed, and of enforcing it.
- Assignment: the beneficiary can transfer the benefit if it sells its business; the guarantor cannot.
- Default interest, and South Australian governing law.
The preservation clause does the heaviest work. A guarantor facing a demand often points to a change in the main contract it did not agree to, such as a price rise, longer credit terms or a new contract. Listing those events in the deed meets the argument in advance.
Default interest needs a rate the beneficiary can justify. In Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, Kiefel J, with whom French CJ agreed, said the question for a provision for payment of a sum on default is whether it is out of all proportion to the interests of the party it is meant to protect ([29]).
For a guarantor, the points to negotiate are a cap on liability, a limit to the named contract rather than all future dealings, and a right to end the guarantee for future obligations on notice or on leaving the company.
Why is a guarantee given as a deed?
Because a deed is the most formal way to make a promise, and lenders and suppliers expect guarantees in that form.
Under the Law of Property Act, an instrument executed under section 41 is a deed if, for example, it is expressed to be a deed, or the circumstances or nature of the instrument show the parties intended it to be one (section 41(5)). Delivery and indenting are not necessary (section 41(3)). A company may execute a document as a deed if it is expressed to be executed as a deed and executed under section 127(1) or (2) of the Corporations Act (section 127(3)). Delivery is not necessary (section 127(3B)).
In practice, the document should be called a deed, with an execution clause saying it is executed as a deed and signing blocks that follow the Acts. Many arguments about a guarantee start with the signing page.
How should an individual guarantor sign?
In front of a witness who is not a party. A natural person executes a deed by signing it or making a mark (Law of Property Act section 41(1)(a)), and the execution must be attested by at least one witness who is not a party to the deed (section 41(2)(a)).
That rule catches a common mistake. Where two directors give a guarantee in the same deed, each is a party, so neither can witness the other’s signature. The witness should be an independent person who watches the guarantor sign.
A deed can also be executed on behalf of a party by a person with authority, such as an attorney, or at the direction and in the presence of a natural person (section 41(1)(c)). Where it is executed at the direction and in the presence of the party, a person authorised to take affidavits must attest it (section 41(2)(b)).
A director often signs the main contract for the company and the deed personally. The deed should give each guarantor a separate personal execution block with a witness line, so there is no argument that the director signed only for the company.
Despite defective execution, the deed is valid if external evidence shows the party intended to be bound (section 41(4)). That fallback depends on evidence, and a properly witnessed deed avoids the need for it.
How does a company sign a deed?
Usually under section 127 of the Corporations Act. A company may execute a document without a common seal if it is signed by two directors, a director and a company secretary, or, for a proprietary company whose sole director is also its sole secretary or which has no secretary, that director (section 127(1)). With a common seal, the fixing of the seal is witnessed by the same combinations (section 127(2)).
The document is executed as a deed if it is expressed to be executed as a deed and executed under section 127(1) or (2) (section 127(3)). A deed executed under section 127(1) does not need to be witnessed, and may be physical or electronic (section 127(3A)). Section 127 does not limit other ways a company may execute documents (section 127(4)). Under the Law of Property Act, a body corporate executes a deed by affixing its common seal in accordance with its rules (section 41(1)(b)).
A company guarantor is common where a related company guarantees a trading company’s obligations. The beneficiary should search the company and confirm the people signing hold the offices the execution block names.
Can a deed be signed electronically?
Yes, as both Acts allow. A deed may be signed, sealed or executed electronically (Law of Property Act section 41(1)(d)). For a company, the requirement to sign may be satisfied electronically (note to Corporations Act section 127(1)), and a deed executed under section 127(1) may be physical or electronic (section 127(3A)).
Section 41(2) requires attestation for a natural person, so electronic signing for a personal guarantor should provide for a witness who is not a party. The signing platform should keep an audit trail of who signed and when, which is useful external evidence of intention if the execution is later questioned (section 41(4)). The deed should also allow execution in counterparts, so each guarantor can sign a separate copy.
Why do guarantors get independent legal advice?
So the beneficiary can show the guarantor had the deed explained by someone independent. The starting point is that a signature binds. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, the joint reasons stated the general rule. Absent a vitiating element or a claim for equitable or statutory relief, a person who signs a document known to contain contractual terms and to affect legal relations is bound by those terms, whether or not they read it ([57]).
Garcia v National Australia Bank Ltd [1998] HCA 48 concerned a wife who guaranteed her husband’s business debts. The joint judgment explained that the principle in issue treats the surety as a volunteer who obtained no financial benefit from the guaranteed transaction. In the second kind of case the principle covers, it would be unconscionable to enforce a wife’s guarantee if she did not understand its purport and effect, the transaction was voluntary, and the lender took no steps itself to explain it and did not reasonably believe it had been explained to her by a competent, independent and disinterested stranger ([31]).
The analysis does not depend on a presumption of undue influence, or on the husband being the creditor’s agent. It depends on the surety being a mistaken volunteer, and on the creditor being taken to appreciate that, because of the trust and confidence between surety and debtor, the surety may receive no sufficient explanation ([33]). The appeal was allowed with costs, the Court of Appeal’s orders were set aside and the appeal to that Court was dismissed ([46]).
Garcia is a decision about a wife’s guarantee of her husband’s business debts. Lenders and suppliers commonly ask a guarantor who is not involved in running the business, such as a director’s spouse or parent, to take independent legal advice before signing and to provide a certificate from the lawyer.
The certificate is signed by a lawyer acting for the guarantor alone. It states that the lawyer explained the deed and its effect, away from the company’s directors and the beneficiary, and that the guarantor said they understood it. It gives the beneficiary a basis to believe the deed was explained by a competent, independent and disinterested adviser, one of the matters identified at [31].
How is a guarantee enforced?
In the order the deed sets. In general terms:
- Check the debt and the deed: the company owes the amount, the main agreement is one the deed covers, and the deed was properly signed and witnessed.
- Serve a written demand on the guarantor, at the address or email in the deed and by a method the notices clause allows, stating the amount and the obligation not performed.
- Allow the time the deed or the demand gives.
- If the guarantor does not pay, issue proceedings for the amount owing under the deed, with interest and costs as the deed allows.
- After judgment, use the court’s enforcement processes against the guarantor’s assets.
Guarantors’ responses tend to be predictable. The deed does not cover this debt; the main contract changed; they signed only for the company; the deed was not witnessed; they did not understand it. A deed drafted and signed properly answers most of these on its face, and independent advice goes to the last.
Where the company is being wound up, the deed’s insolvency clause governs how the beneficiary proves for the debt and applies any dividend, and the preservation clause is written to keep the guarantor liable.
How similar matters tend to play out
Three illustrations of how the law on this page combines on ordinary facts. They are not predictions. Outcome depends on the documents, the evidence and the court.
Lower range. A building supplies business opens a trade account for a small company. Both directors sign a deed of guarantee with the credit application, and each witnesses the other’s signature. The company later stops paying. Each director was a party, so neither was a witness who was not a party (Law of Property Act section 41(2)(a)). The supplier may need external evidence that each intended to be bound (section 41(4)), which proper witnessing would have made unnecessary.
Middle range. A commercial maintenance contractor’s client company falls behind on monthly invoices. Its director signed a continuing deed of guarantee and performance when the contract started. Since then, the contractor has extended the credit term and added two sites. The director says those changes release him. The deed lists variations, extensions of time and indulgences as events that do not affect the guarantor’s liability, which meets the argument on the deed’s own terms.
Upper range. A builder’s wife, with no role in his business and no benefit from it, guarantees his business debts to a lender without understanding what she signs. The lender explains nothing and has no reason to believe anyone independent has. On facts like those, the joint judgment in Garcia said it would be unconscionable to enforce the guarantee ([31]). An independent advice certificate at the outset goes to that point.
How we act on deeds of guarantee
Our deed of guarantee lawyers act for the businesses that take guarantees and for the people asked to give them. For a supplier, the aim is a deed that covers the right obligations and is signed properly. For a guarantor, it is knowing exactly what is being signed, and limiting it where possible.
| Stage | What happens | What we do |
|---|---|---|
| Before credit | The business decides whether to require a guarantee. | Advise who should give it and whether security is also needed. |
| Drafting | The deed is prepared or reviewed. | Draft the guaranteed obligations, indemnity, preservation, insolvency, notices and costs terms. |
| Signing | The guarantors sign. | Prepare execution blocks for each capacity and arrange witnessing or electronic signing. |
| Guarantor advice | A director or family member is asked to sign. | Explain the deed and its effect, negotiate limits and provide an independent advice certificate where appropriate. |
| Default | The company does not pay or perform. | Serve the demand, recover the debt and answer the guarantor's defences. |
We cannot promise an outcome, and no lawyer can. We can make sure the deed says what you need and is signed so it can be relied on.
Before anyone signs. Book a same-day free 30-minute consultation or call (08) 7094 2021.
Deed of guarantee case law
Garcia decided a guarantee case; Toll and Paciocco decided general points that apply to one.
| Case | Court | Principle | Pinpoint |
|---|---|---|---|
| Garcia v National Australia Bank Ltd [1998] HCA 48 | High Court | When it is unconscionable to enforce a wife's guarantee of her husband's business debts | [31], [33], [46] |
| Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 | High Court | A signed contractual document binds, read or not | [57] |
| Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28 | High Court | Test for a sum payable on default | [29] |
Case notes
Garcia v National Australia Bank Ltd [1998] HCA 48
A wife guaranteed her husband’s business debts. The joint judgment of Gaudron, McHugh, Gummow and Hayne JJ explained that, in the second kind of case the principle covers, it would be unconscionable to enforce a wife’s guarantee if she did not understand its purport and effect, the transaction was voluntary, and the lender took no steps itself to explain it and did not reasonably believe it had been explained to her by a competent, independent and disinterested stranger ([31]). The appeal was allowed with costs ([46]).
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52
The joint reasons stated the general rule that, absent a vitiating element or a claim for equitable or statutory relief, a person who signs a document known to contain contractual terms and to affect legal relations is bound by those terms, whether or not they read it ([57]). The appeal was allowed with costs.
Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28
Kiefel J, with whom French CJ agreed, asked whether a provision for payment of a sum on default is out of all proportion to the interests it is intended to protect ([29]). Both appeals were dismissed.
Frequently asked questions
What is a deed of guarantee?
A deed in which a guarantor, usually a director, promises a business that the company will pay and perform its obligations, and that the guarantor will do so on demand if the company does not.
What is the difference between a guarantee and an indemnity?
A guarantee is a promise that the company will perform, backed by the guarantor’s promise to perform if it does not. An indemnity is a promise to make good the beneficiary’s loss.
Does a director guarantee cover future invoices?
If it is a continuing guarantee of the company’s obligations under the named agreements, yes. It covers each obligation as it falls due until all are performed or the parties agree to end it.
Does a deed of guarantee need to be witnessed?
For an individual guarantor, yes, by at least one witness who is not a party (Law of Property Act 1936 (SA) section 41(2)(a)). A company deed signed under section 127(1) of the Corporations Act needs no witness (section 127(3A)).
Can a co-director witness a guarantee?
Not if they are also a guarantor under the same deed, because the witness must not be a party (Law of Property Act 1936 (SA) section 41(2)(a)).
Can a deed of guarantee be signed electronically?
Yes. A deed may be signed, sealed or executed electronically (Law of Property Act section 41(1)(d)), and a company deed under section 127(1) may be physical or electronic (Corporations Act section 127(3A)).
What if the deed was not signed properly?
It may still be valid. Despite defective execution, it is valid if external evidence shows the party intended to be bound (Law of Property Act 1936 (SA) section 41(4)).
Is a guarantor bound if they did not read the deed?
Generally, yes. A person who signs a document known to contain contractual terms is bound by them whether or not they read it, absent a vitiating element or a claim for equitable or statutory relief (Toll v Alphapharm at [57]).
What is an independent advice certificate?
A certificate from a lawyer acting for the guarantor alone that the lawyer explained the deed and its effect before the guarantor signed. It is evidence of an explanation by a competent, independent and disinterested adviser, a matter the joint judgment in Garcia identified for a wife’s guarantee of her husband’s business debts ([31]).
Can a supplier claim against the guarantor without suing the company first?
Usually, yes. Well-drafted deeds say the beneficiary can call on the guarantor on demand without first taking steps against the company or enforcing any security.
Do I need a deed of guarantee lawyer?
For a guarantee that secures real credit, or one you are asked to sign, yes. A deed of guarantee lawyer can draft the deed to cover the right obligations and set up the signing properly. A free 30-minute consultation will tell you where you stand.