Credit heads and in-house counsel often default to “surety/guarantee” language in facility letters, assuming the two offer equal comfort. They do not. In high-value corporate lending and trade credit, insisting on a stand-alone guarantee – rather than an accessory suretyship – gives the creditor tighter control, faster recovery, and stronger balance-sheet optics. Here's why your security package should start with guarantees.
Independence Equals Insolvency Immunity
| Feature | Surety | Guarantee |
| Link to principal debt | Accessory: rises and falls with the debtor | Autonomous: survives liquidation, deregistration, or business-rescue moratoria |
| Defences available | Mirrors every defence the debtor can raise | Limited to fraud or non-compliance with demand formalities |
If the borrower enters business rescue or liquidation, a creditor holding only suretyships is forced into the same procedural queue as everyone else. A guarantor, by contrast, remains fully liable on first demand – keeping your recovery timeline in your hands, not the practitioner's.
Speed of Enforcement – Cash-Flow Certainty
- • On-demand (also called “callable”) guarantees require no prior judgment or exhaustive proof of default.
- • Courts treat them like documentary credits: if the formal demand meets the wording, the guarantor must pay – often within days.
- • Suretyships usually trigger litigation before execution, delaying recovery and raising legal costs.
Board-level benefit: Predictable enforcement windows improve cash-flow modelling and reduce provisioning for doubtful debts.
Clean Disclosure and Covenant Hygiene
Large corporates increasingly report contingent liabilities under IFRS. Guarantees, being independent, can be quantified and ring-fenced; suretyships, with their derivative nature, create “grey” exposures tied to another entity's financial health. Clearer disclosure:
- • Strengthens lender confidence in group financials.
- • Reduces covenant complexity in syndicated borrowing bases.
- • Facilitates securitisation or asset-backed funding that demands granular collateral mapping.
Negotiation Leverage with Counterparties
When you deliver an autonomous guarantee:
- • Suppliers may extend longer terms or higher limits.
- • Financiers can price facilities more competitively, recognising the lower enforcement risk.
- • Joint-venture partners perceive the commitment as skin-in-the-game, easing transaction friction.
5 Practical Drafting Tips for Credit Teams
- 1. Label isn't enough—substance rules. Ensure the clauses state an “independent, primary, unconditional obligation” payable “notwithstanding any defence” of the debtor.
- 2. Include a “pay now, argue later” mechanic. Limit the guarantor's right to raise disputes before payment.
- 3. Cap exposure, set expiry. A well-defined maximum liability or sunset date keeps risk committees comfortable without weakening effectiveness.
- 4. Mind regulatory caps. Banks and specialised lenders must align guarantee wording with the Banks Act and SARB prudential requirements.
- 5. Keep the surety – just in case. A twin-track package (guarantee plus suretyship) provides belt-and-braces coverage, especially where multiple jurisdictions are involved.
Case Snapshot: Godrich Flour Mills v Swart (1988)
Flemming J's celebrated “two fishing lines” metaphor still guides courts: a surety links itself to the same line as the debtor; if that line snaps, both fish swim free. A guarantee gives the creditor a second, stronger line – precisely the resilience modern treasury policies demand.
The Strategic Take-Away
For high-value, cross-border, or time-sensitive exposures, guarantees offer creditors:
- • Insolvency-remote protection
- • Accelerated cash recovery
- • Cleaner accounting treatment
- • Commercial leverage in pricing and supply chains
In short, a guarantee converts hope of repayment into a legally enforceable certainty – a critical distinction in an era of tight margins and heightened counterparty risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
