Duties owed by a mortgagee to guarantors of the mortgage debt

In Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540, Justice Davies of the NSW Supreme Court considered the duties owed by a mortgagee to guarantors of the mortgage debt.

His Honour held that the Guarantors were liable to pay the full amount under the guarantee. In doing so, his Honour concluded that s420A of the Corporations Act 2000 (Cth) does not protect guarantors in the circumstances and that the Agreement contained no implied terms imposing a duty to obtain the best price for the Property.

This case confirms that s420A does not protect guarantors of a mortgage debt owed by a corporation when a mortgagee sells the property securing that debt. Consequently, where a guarantor is dissatisfied with the sale price, it will need to rely on any equitable rights and remedies it may have for redress. However, guarantors should remember that the exercise of such rights will be subject to the terms of the guarantee and any other contract between the guarantor and the creditor.