Relationship Debt and Guarantees: Best Practice v Real Practice

Publication Type:
Journal Article
Journal of Banking and Finance Law and Practice, 2004, 15 (2), pp. 89 - 115
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Guarantee transactions have generated an enormous volume of litigation over the past 20 years in Australia and elsewhere. There have been numerous major reports referring to the problem of relationship debt in recent years as concern about guarantee transactions has grown. This article outlines the major findings of the first comprehensive Australian empirical research into the law and practices governing third party guarantees. The research was directed to finding out more about the experiences of the people who agree to guarantee the loans of others. Why do they sign on, how do they get into trouble in those transactions and what might have assisted them in avoiding such difficulties? Despite measures such as the Consumer Credit Code (1996) and the Code of Banking Practice (1993)(2003) , guarantee practice shows little evidence of what either the finance industry or consumer advocates would regard as best, or even adequate, practice.
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