Guarantee and Indemnity Claims Solicitors

JMW’s Commercial Litigation lawyers act on guarantee and indemnity claims arising from lending arrangements, business debts, commercial contracts and corporate transactions. These disputes can place significant pressure on companies, directors, shareholders and creditors, particularly where personal guarantees or indemnities are being enforced.

When a guarantee and indemnity dispute arises, early legal action will allow you to understand whether the demand is valid, if the agreement is enforceable and the options available to recover sums owed or challenge liability. Our expert solicitors will give you a clearer view of the strength of the claim, the risks attached to the agreement and the most effective route to recover sums owed or challenge liability. In many cases, a focused strategy at the outset will prevent the dispute from escalating and put you in a stronger position if formal action becomes necessary.

Whether you are pursuing guarantee claims, defending a personal guarantee and indemnity demand, or dealing with an indemnity claim arising from a business transaction, JMW provides practical and strategic legal advice from the outset. Speak to our guarantee and indemnity solicitors today by calling 0345 872 6666, or filling in our online enquiry form to request a call back.

How JMW Can Help

JMW’s commercial litigation lawyers advise on complex and high-value disputes across a wide range of sectors. We act for companies, directors, shareholders, lenders, investors and individuals, tailoring our advice to the terms of the agreement, the wider commercial context and the risks involved.

JMW’s Commercial Litigation department has a strong reputation for handling serious business disputes with professionalism and commercial judgement. We are recognised in the Legal 500, and our team has the depth, experience and scale to manage complex guarantee and indemnity disputes, where the sums involved, the underlying contract or the wider business consequences require careful strategic thinking.

When you instruct our solicitors, we will review the guarantee, indemnity or wider contractual document(s) to establish the legal position and the commercial risk attached to it. We will study the wording of the agreement, the circumstances around the execution and the extent of any guarantor’s liability.

Our solicitors assess whether the guarantee or indemnity is enforceable, test the basis of the claim and identify the steps that will best protect your position. We respond to creditor demands, pursue payment from guarantors, challenge liability, negotiate time to pay and work to resolve disputes before legal proceedings become necessary.

Where claims cannot be resolved through correspondence or negotiation, we will pursue a clear litigation strategy. We act for both claimants and defendants in guarantee and indemnity disputes, offering pragmatic advice that reflects the value of the claim, the strength of the evidence and any financial risks involved.

Meet Our Team of Commercial Litigation Solicitors

JMW’s commercial litigation solicitors act on guarantee and indemnity claims involving business debts, personal guarantees, indemnities and disputed liability. We develop clear strategies for claimants and defendants, to resolve our clients' disputes and safeguard their financial interests.

What Is an Indemnity Claim?

An indemnity claim arises when a party relies on an indemnity clause or indemnity agreement to recover a loss. In commercial contracts, an indemnity usually creates a direct promise to meet a defined liability if the circumstances set out in the agreement occur. These claims become particularly important where a loan, business sale, shareholder agreement or supply contract exposes one party to a loss that it believes another party agreed to cover.

An indemnity is a primary obligation and is a promise that one party will be responsible for another’s loss.  . If the defined liability arises, the party giving the indemnity may remain liable pound for pound, even where there is a dispute about the original agreement or the wider commercial relationship. If the transaction is set aside for whatever reason, the person giving the indemnity will still remain liable. The exact wording of the document will determine what losses are covered, when payment becomes due and whether the indemnity is subject to any limits.

If the wording of the indemnity clause is ambiguous and it isn’t clear if it is a guarantee or an indemnity, the court will presume it is a guarantee. 

Indemnity claims usually turn on whether the demand reflects the wording of the agreement. The dispute may concern the type of loss claimed, the amount being sought or whether the claimant has followed the process set out in the contract. JMW reviews those issues and advises on the strongest route to pursue payment, challenge liability or resolve the claim through negotiation or other alternative dispute resolution methods.

What Is the Difference Between Guarantee and Indemnity?

A guarantee and indemnity may appear in the same document, but they do not create the same type of liability. A guarantee is usually a secondary obligation meaning it will never be greater than the underlying agreement. The guarantee is a promise that the third party will meet another party’s contractual obligation if that party fails to do so, such as where a principal debtor fails to make payment under a loan or commercial agreement.

An indemnity usually creates a primary obligation. It requires one party to cover a defined loss, liability or cost in the circumstances set out in the contract. This means an indemnity may apply even where there is a dispute about the original agreement or the underlying contract.

The legal requirements also differ. A guarantee must be made in writing, or evidenced in writing, and signed by the guarantor. An indemnity does not need to meet the same formal requirements, but it must still form part of a valid contract.

Entering into both types of transactions brings with it serious financial risk, so it is important to be aware of all the implications. Many commercial documents include both indemnities and guarantees, so parties should seek independent legal advice before signing and seek legal advice promptly if a dispute arises.

What Are the Most Common Disputes in Guarantee and Indemnity Claims?

Guarantee and indemnity claims usually arise when a creditor seeks payment and the guarantor or indemnifying party doesn't agree with the basis of the demand. Common disputes include:

• Whether the debt is due: the guarantor may dispute whether the principal debtor has failed to meet the relevant contractual obligation, or whether the creditor has calculated the debt, interest or costs correctly.
• Whether the guarantee or indemnity covers the claim: the parties may disagree about whether the document applies to the specific loan, transaction, loss or liability being pursued.
• Whether the guarantor’s liability is capped: disputes can arise over financial limits, time limits, interest provisions and whether the guarantee extends to future borrowing or wider business debts.
• Whether the creditor followed the correct process: the demand may be challenged if the creditor has not complied with the notice provisions or other conditions set out in the contract.
• Whether the underlying contract has changed: if the creditor and principal debtor have varied repayment terms, extended credit or changed the original agreement, this may affect whether the guarantor remains liable.
• Whether the document is enforceable: a guarantor may challenge a guarantee if it was not made in writing, evidenced in writing or signed as required.
• Whether independent legal advice was obtained: in personal guarantee claims, the circumstances in which the document was signed may become relevant, particularly where a director, shareholder or individual guarantor says they did not understand the extent of their liability.

Whether you are seeking to enforce a guarantee or respond to a demand, JMW will provide early strategic advice and identify pressure points in the dispute. Where negotiations can't reach a commercially viable solution, we will take decisive action to protect your position.

When Should I Pursue Alternative Dispute Resolution (ADR) For an Indemnity Claim?

The courts expect parties to consider alternative dispute resolution before pursuing legal proceedings, and they may penalise a party on costs if that party unreasonably refuses to engage. In guarantee and indemnity disputes, ADR often involves negotiation or mediation to narrow the issues, test the strength of the demand and explore a commercial outcome before costs escalate.

From a commercial perspective, ADR gives the parties more control over the outcome than court proceedings. It allows them to agree revised payment terms, narrow the amount in dispute, resolve uncertainty over the wording of an indemnity clause, reach a confidential resolution that protects reputations and the wider business relationship, and may achieve a resolution that cannot be ordered by the Court.

JMW advises on whether ADR is viable, and will lead your strategy for negotiation or mediation, to make sure your position is protected throughout the process. If ADR does not resolve the indemnity claim, we remain ready to pursue litigation on your behalf.

What Legal Remedies Are Available for Guarantee and Indemnity Claims?

In many cases, the first step is to establish whether payment is due, who is liable and whether the guarantee or indemnity covers the debt or loss being pursued. Where a creditor has a valid claim, they may issue a formal demand and, if payment is not made, start legal proceedings to recover the sums owed. This may involve a debt claim against the guarantor, a claim under an indemnity, or proceedings that deal with both forms of liability where the document contains indemnities and guarantees.

If the parties disagree about the effect of the document, the court may need to decide whether the guarantee or indemnity is valid, how far the guarantor’s liability extends, and whether the wording covers the debt, interest, costs or loss being claimed. This can be particularly important where the document is unclear, the underlying contract has changed, or the guarantor argues that the provision is unenforceable.

Once judgment has been obtained, enforcement action such as debt recovery could be required if the liable party still does not pay. The appropriate route will depend on the debtor’s position, the value of the claim and the assets available. In urgent cases, protective steps like an injunction may be needed where there is a risk that assets will be moved or placed beyond reach.

JMW advises on the remedy that best fits the dispute and the commercial objective behind it. We assess the agreement, the financial risk and the practical prospects of recovery, then take clear action to pursue payment and protect your position through legal proceedings.

Q

What happens if a company becomes insolvent before debts are paid?

A

If a company becomes insolvent, this does not usually release a director, shareholder or other individual from liability under a personal guarantee they have signed. A personal guarantee is a separate promise to pay the creditor if the company cannot pay the debt itself. This means the creditor may still be able to pursue the guarantor personally, even if the company has entered administration, liquidation or another insolvency process.

In some cases, the position may be affected by the terms of a company voluntary arrangement, or CVA. Depending on how the CVA is drafted, it may deal with the company’s debts in a way that affects the creditor’s ability to pursue the guarantor. The wording should be reviewed carefully before assuming that liability under the guarantee has been released.

Directors or shareholders who have given personal guarantees should seek legal advice as soon as the company faces financial difficulty. Payments made shortly before insolvency, including payments to a creditor whose debt is personally guaranteed, may later be challenged as a preference if they put that creditor in a better position than others.

Q

Can I file for bankruptcy if I am unable to pay the company debt?

A

If you have personally guaranteed company debt and cannot afford to pay what is owed, you may be able to apply for your own bankruptcy. However, bankruptcy is a serious step and should usually be treated as a last resort. It can affect your personal assets, your credit position, your ability to act as a company director and your wider financial affairs.

Before considering bankruptcy, it is important to check whether the debt is legally enforceable against you. A creditor can only pursue you personally if the guarantee is valid, the debt falls within its terms and the amount claimed is properly due. There may be grounds to challenge the guarantee, dispute the sum claimed, or negotiate a commercial settlement.

If no agreement is reached, the creditor may also be able to take enforcement action against you, which can include issuing a statutory demand and, in some circumstances, presenting a bankruptcy petition.

JMW can review the personal guarantee, the creditor’s demand and the amount being claimed to advise whether the debt can be challenged. Where payment is due, we can advise on alternatives to bankruptcy, including negotiating time to pay, reaching a settlement, or exploring other debt resolution options.

Q

What happens if a company is jointly owned?

A

When two or more company directors or shareholders give a personal guarantee to the same creditor, such as a bank, the guarantee may make them joint and several liable. This means the creditor may be able to claim the full amount owed from any one of the guarantors, rather than having to recover an equal share from each person. 

Before giving a guarantee, individuals should seek independent legal advice in order to understand the extent of their liability and the potential far-reaching consequences for them. For instance, a guarantor should:

• Seek to negotiate a ‘cap’ on the guarantee in terms of amount and time
• Seek to ensure the guarantee is in relation to a specific loan, as opposed to all future borrowings
• Avoid securing the loan by way of a charge over a family home

A director must also take into consideration their duties as a director and any conflict of interest that may arise by signing a guarantee.