Take great care to include guarantors when carrying out a loan variation

The New South Wales Court of Appeal held in Adisan Pty Ltd v Irwin [2015] NSWCA 217 that a lender may be found to have engaged in misleading and deceptive conduct if they fail to inform all guarantors of any variation to the terms of the loan. It was also held that a failure to inform all guarantors of changes in the loan agreement may release the guarantors from their liability under the amended loan contract.

Adisan involved a loan agreement between a lender and two borrower companies which was guaranteed by six guarantors. The loan was due to be repaid in 2009, however the borrowers defaulted and the terms of the loan were varied.

The variations to the loan agreement included an extension to the repayment dated until 2011, an increase in the interest rate applicable on the loan and a first mortgage over another property. The new security property was owned by Bingemann Holdings, who also provided a guarantee to the loan for the variation. At the time the loan was varied, it was agreed between the lender, the borrowers and Bingemann Holdings that Bingemann’s liability would be limited to the proceeds of the sale of the additional security property.

The amendments to the loan agreement were documents in a Deed of Variation which was executed by the lender, borrowers, Bingemann Holdings and the guarantors. The Deed of Variation however, made no mention of Bingemann’s liability being limited, nor were any of the remaining guarantors aware of this.

In 2011, the borrowers again defaulted by failing to repay the loan. The guarantors were served with default notices requiring them to pay the loan. One of the guarantors disputed the notice and denied liability to repay the loan due to the fact that the variation limiting Bingemann’s liability was not disclosed.

The matter reached the NSW Court of Appeal which described the variation as being “a new loan contract” and as such held that the original guarantees provided, “did not extend to cover the amended facility”.

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