Legal Update: Maxted And Another v Investec Bank Plc [2017]

Summary

The High Court recently heard the case of Maxted and another v Investec Bank plc [2017], which looked at whether amending loan agreements multiple times would discharge a personal guarantee given by the directors of the borrower companies. It was held in this instance that even though the underlying agreements were amended several times, the guarantee was unaffected because the guarantee included a "consent to variation" or "indulgence" clause which meant that the guarantors had consented to amendments to the loan agreements of the type in question.

Background

A guarantee is a "secondary obligation" to perform an obligation of some other person (the "primary obligation") where they fail, or are unable, to do so. It is a common way for a lender to seek protection from the risk of a borrower defaulting on a debt by requiring a guarantor to repay an amount owed by the borrower if the borrower fails to pay it itself and are often given by directors of a borrower company.

Due to a guarantor's liability being dependent on the underlying primary obligation, the guarantee may be discharged if the contract containing the underlying obligation is materially amended. Accordingly, if the parties to the underlying contract (e.g. a lender and borrower) wish to amend that contract, they must do so in a way which does not...