Independent Guarantor Advice
Why your lawyer cannot act for both the Borrower and the Guarantor
In many commercial and property transactions, lenders require a director, shareholder or spouse to provide a personal guarantee. Before signing, the guarantor is often required to obtain independent legal advice. This requirement is not a formality. It is a safeguard designed to ensure the guarantor fully understands the personal risk they are taking on.
A common question arises at this point.
Can the same lawyer who acts for the borrowing company also provide the guarantor with that advice?
The short answer is no.
Independence and Conflict
When a lawyer acts for a borrowing company, their role is to progress the transaction and protect the borrower’s interests. A guarantor, however, is taking on a separate and often significant personal liability.
Proper legal advice to a guarantor may include:
recommending that they do not sign the guarantee
advising that the guarantee be limited or amended
identifying risks that could affect their personal assets
suggesting that the transaction should not proceed
This advice can directly conflict with the interests of the borrowing company.
Because of this, a lawyer cannot be truly independent if they are also acting for the borrower. The requirement for independence is both practical and legal. It ensures that the guarantor receives objective advice that is not influenced by the transaction proceeding.
Guidance from the Queensland Law Society
The Queensland Law Society, together with the Australian Solicitors’ Conduct Rules, makes it clear that lawyers must avoid conflicts of interest and must not act where their duties to one client conflict with another.
In the context of guarantees, the position is well understood in practice:
A lawyer acting for the borrower should not provide independent advice to the guarantor
The guarantor must receive advice that is genuinely separate and free from influence
Even where the parties appear aligned, the risk of conflict remains
In most cases, this is treated as a non-consentable conflict. This means that even if both parties are willing, the lawyer should still decline to act for both.
Why Lenders insist on Independent Advice
Lenders require independent guarantor advice to protect the enforceability of the guarantee. If a guarantor later argues that they did not understand what they signed, or that they were pressured or influenced, the guarantee may be challenged.
Independent advice helps to address issues such as:
undue influence
unconscionable conduct
lack of understanding of financial risk
If the advice is not genuinely independent, there is a real risk that the guarantee could be set aside.
What should happen in practice
If a lawyer is acting for a borrowing company, the correct approach is straightforward:
clearly advise the guarantor that the lawyer can act only for the borrower
confirm that the lawyer cannot provide them with independent legal advice
recommend that the guarantor obtain advice from another law firm
avoid providing substantive explanations of the guarantee beyond general information
This approach protects all parties involved and ensures compliance with professional obligations.
Risks of getting it wrong
Failing to properly separate these roles can have serious consequences for both the lawyer and the transaction.
These include:
the guarantee being unenforceable
professional negligence claims
complaints or disciplinary action
reputational damage with lenders and clients
Conclusion
Independent guarantor advice must be exactly that. Independent.
If your lawyer is acting for the borrowing company, they cannot also advise you as a guarantor. Engaging a separate lawyer is not an inconvenience. It is a necessary step to ensure that your interests are properly protected and that the transaction stands up if ever tested.
If you require advice in relation to a guarantee or a lending transaction, our team can assist and guide you through the correct process. That is, of course, provided we don’t already act for the borrowing company.