A security acts as a fallback position for banks should an applicant default in payment of a bank loan. However, care should be exercised before accepting a guarantee of a limited company . Discuss

Guarantee is a written promise made by one person to be collaterally answerable for the debt,
default, or miscarriage of another.

Care must be exercised before accepting the guarantee of a limited company. the following should be noted before accepting a guarantee of a limited company:

  1. The memorandum of association must contain a special power to execute guarantees. If no specific power exists, any guarantee executed will be ultra vires the company thus unenforceable.
  2. The articles of association stipulate the manner in which the guarantee may be executed, i.e. either:
    • (i) under hand of a dully authorized official(s) by the resolution of the board of directors, or
    • (ii) under seal of the company.
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