Enhance Your Business Terms: The Importance of Personal Guarantee Clauses in Malaysia

Looking to reduce payment defaults, especially when dealing with Sdn. Bhd. or Bhd. companies?

Consider the almighty "Personal Guarantee" clause:

"By executing this form, the executing signatory expressly agrees that he/she shall, in his/her personal capacity; principally, irrevocably and unconditionally guarantee the performance and payment of the Client’s present and future payment obligations towards the Company."

Some years ago, one of my regular clients asked me to review their company's general T&Cs; and I included the above clause.

2 years later, my client came back to me, complaining of a debt of over RM 200,000.00 owed to them by a Sdn. Bhd.

Upon conducting an SSM search, we found that the Sdn. Bhd. had a RM 2.00 paid up capital; it was an empty vessel with no assets/cash .

The debtor was hiding behind the veil of an empty shell company; and was not entertaining my client's numerous pleas for payment.

However, upon close inspection of the transaction documents, we found that the director of this company had signed off on my client's general T&Cs containing the personal guarantee clause, making him personally liable for the debt.

When we pointed this out to the debtor's lawyer; their arrogance disappeared quickly .

1 week later, we received a cheque for full debt amount.

The moral of the story is: without a personal guarantee, your terms are just wishes.

With it, they become assurances.

AUTHOR PROFILE

Rudi Cheu is the principal of Rule & Co. Advocates & Solicitors; a Malaysian law firm focusing on practical and cost-effective solutions for debt recovery and commercial disputes. With nearly a decade of debt recovery experience under his belt; Rudi is passionate about helping businesses navigate debt recovery challenges and shares insights at www.rulecolaw.com/blog and recoverdebt.my

He can be reached via Whatsapp: +60102028095 or via email: rudi@rulecolaw.com