THE LIABILITY OF GUARANTORS

 

Q1. Please explain the type of guarantor in Malaysia.

 A: There are two types of guarantors. A social guarantor and a non-social guarantor.

Q2. If I became a guarantor for my relative when he wants to purchase a car for his personal use, what kind of guarantor am I?

A: You would be a social guarantor.

Q3. What is a social guarantor?

A:  A social guarantor’ is a person who, not for the purpose of making profit, provides guarantees on the following[1]:

(i)    a guarantee for loan, scholarship or grant for educational or research purposes;

(ii)   a guarantee for hire purpose transaction of a vehicle for personal or non – business use;

(iii)  a guarantee for a housing loan transaction solely for personal dwelling.’

If you are a guarantor for other than the aforesaid purpose, you are non-social guarantor.

Q4. If I am a social guarantor, can bankruptcy action be taken against me if the principal borrower defaulted in his/her payment?

A: Yes. However, the law provides that the Creditor must exhaust all action against the Principal Borrower prior initiating bankruptcy against the guarantor.[2]

 Q5. How can bankruptcy action be initiated against a social guarantor?

A:The Creditor must file an affidavit to prove to the Court that all action has been exhausted against the Principal Borrower. Thereafter, the Creditor may file a Bankruptcy action against the guarantor.

Q6. How about if I am a non-social guarantor, how can action be taken against me?

A: That would be depending on the terms of Guarantee. If the term is “on-demand guarantee”, there must be a demand before an action can be taken against you[3] .

 Q7. What kind of guarantee that will make a guarantor liable as soon as the principal borrower defaulted payment?

A:If the guarantor agreed to become the Principal Debtor, there will be no demand needed before the Creditor can immediately take action against the guarantor[4].

 

FOOTNOTES 

[1] Section 2 of Insolvency Act 1967.

[2] In the Federal Court, Hong Leong Bank Bhd v Khairulnizam bin Jamaludin [2016] 4 MLJ 302.

[3] In the High Court, Public Bank Bhd V Nik Chee Kok @ Nik Soo Kok [2003] 2 MLJ 455.

[4] In the High Court, Hong Leong Bank Bhd v HGM Machinery Sdn Bhd (formerly known as Handee Engineering & Consultancy Services Sdn Bhd) & Ors [2013] 9 MLJ 412.

THIS FAQ IS PREPARED AND PUBLISHED BY GENERAL LITIGATION, CORPORATE INSOLVENCY AND APPELLATE DEPARTMENT OF THE DISPUTES RESOLUTION OF MESSRS GAN & ZUL, ADVOCATES & SOLICITORS.
Prepared by:

Ben Lee Kam Foo (Partner)
Head of Dispute Resolution
Arbitrator & Adjudicator
Fellow of ADR, AIAC
Cross Border Taxation Planning

Shafihani Binti Md Ali
(Senior Associate)
General Dispute Resolution
Appellate Division
Contractual, Land and Commercial Disputes
Pre and Post Liquidation Disputes

Gan & Zul is an established legal firm in Malaysia which consists of experienced litigation lawyers. Our firm provides a wide spectrum of legal services covering various aspects of laws includes dispute resolution, debt recovery, land, bankruptcy, insolvency and corporate dispute. We are also a firm construction lawyers based in Kuala Lumpur.
If you have any queries or require additional information, kindly email us at kul.litigation@ganzul.com or call us at 03-2242 3836

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