Business legal guide
Indemnity vs Guarantee Australia
A guarantee ordinarily supports another person’s obligation. An indemnity ordinarily creates a primary promise to meet a defined loss or liability. One document can contain both, so the wording matters more than its title.
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In short
A guarantee ordinarily supports another person’s obligation. An indemnity ordinarily creates a primary promise to meet a defined loss or liability. One document can contain both, so the wording matters more than its title.
Content updated 25 October 2026 · Published by Envision Legal.
Guarantee and indemnity: the basic difference
A guarantee usually involves a creditor, principal debtor and guarantor. The guarantor promises to answer for the debtor’s obligation; the liability is ordinarily collateral or secondary. An indemnity is generally a primary promise by the indemnifier to meet a specified loss or liability.
This does not mean a creditor must always sue the debtor first. A guarantee may permit a demand against the guarantor when its conditions are met. Nor does every indemnity eliminate questions of causation, construction or statutory protection.
Why loan documents contain both
A lender may use a guarantee to support the borrower’s debt and an indemnity to address specified circumstances where the underlying obligation is unenforceable or another loss arises. The indemnity may broaden exposure beyond what the signatory assumes from the word “guarantor”. Read the operative clauses, definitions, demand mechanism and liability limits together.
The label is not decisive
In Canty v PaperlinX Australia [2014] NSWCA 309, the Court considered the construction of a deed containing guarantee and indemnity obligations. The case illustrates why a document called a guarantee can also impose primary liability. The conclusion in any other document depends on its language and context.
What to check before signing
- Covered debt or loss: one facility, future advances, all money owed or multiple entities?
- Cap: does it include interest, enforcement costs and indemnity liabilities?
- Duration: continuing obligations, termination notice and release after refinance or sale.
- Variations: whether changed facilities or borrower obligations affect exposure.
- Security: mortgages and other security over personal assets.
- Demand: when payment can be demanded and what must be established.
Personal guarantee example
A director signs for a company’s supply account and separately signs a personal guarantee and indemnity. Leaving the company does not necessarily release the personal obligation. A capped guarantee may sit beside an indemnity with different wording; do not assume the cap applies to both without checking.
Commercial indemnities outside lending
Indemnities appear in software, supply, services and sale agreements as well as finance documents. Define the trigger, covered losses, third-party claim procedures, exclusions and relationship to the overall liability cap. See indemnity clauses and indemnity versus liability limits.
Independent advice and contract review
If a lender requires independent advice, send the complete loan, guarantee and security pack—not just the signature page. Our guarantor advice and certificate guidance explain the process. Advice does not guarantee lender approval or remove the obligation.
Business indemnities can be scoped through fixed-fee contract review. Applicable statutory protections, including unfair contract terms, require separate assessment; financial products may engage the ASIC Act rather than the ACL regime.
Frequently asked questions
Is an indemnity the same as a guarantee?
No. A guarantee ordinarily supports another party’s obligation, while an indemnity ordinarily creates a primary obligation for defined loss or liability. Actual wording and context determine the result.
Must the lender sue the borrower before the guarantor?
Not always. The document and applicable law determine when a creditor can demand payment from the guarantor. Do not assume the borrower must first be sued.
Does leaving a company cancel a personal guarantee?
Not automatically. Check continuing obligations and obtain any required written release. A resignation, sale or refinance does not by itself establish release.
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