RE: Pressure building on Lunn21 Jul 2025 15:15
It is the default legal position that if a guarantor pays a borrower’s debt under a guarantee, the guarantor acquires a right to recover that amount from the borrower. This is known as subrogation.
Unless the guarantee explicitly excludes this right (which would be unusual), the guarantor effectively steps into the lender’s shoes and becomes a creditor of the borrower. Legally, the borrower’s liability does not disappear when the guarantor pays, it simply shifts from the original lender to the guarantor.
This also means the debt remains on the company’s balance sheet as a liability, just now owed to a different party. It doesn’t get “wiped out” by the guarantor’s payment, the obligation continues to exist.
You’re, of course, free to disagree, and even to try to get this post deleted, but the principle is well established in law, regardless of how anyone feels about it.
“Subrogation and the borrower’s debt to the guarantor
Once the company has paid amounts in consequence of the guarantee, it will usually be entitled to reclaim its outlay from the original borrower. This is a process known as subrogation. The subrogation principle is that, once a guarantor has paid the money under a guarantee, it acquires the lender’s rights against the borrower. That is, it replaces the lender as the creditor party for the original lending, with the same effect as if it had acquired the loan relationship by purchase. Subrogation may happen either by operation of common law or because the particular guarantee contract includes a subrogation clause.”
Source: https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm31100
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