In this time in which the failure of building companies is quite frequent, it is good to be mindful of the presence of “charging clauses” in credit agreements. 

Charging clauses quite often appear in the fine print of director’s guarantees given in favour of credit supply agreements.  As an example, a painter might operate his business through a company, in which he and his wife are directors.  The painting company might run a credit account with a supplier, which commonly will be supported by a director’s guarantee.  Frequently, the director’s guarantee appears fairly innocuous, and will be in very small print, or otherwise be written in a way which is disarming.  For example, the guarantee might have signing provision that says “signature of director” instead of “signature of guarantor” with the consequence that often guarantees are signed by directors who have not properly read the document and do not necessarily appreciate that they are giving a personal guarantee. 

The issue however goes further because many of these guarantees contain charging clauses.  These clauses can be quite bland, for example words such as “the guarantor charges all of the guarantor’s land in favour of the creditor to secure payment of moneys owing by the customer to the creditor”.

Some clauses are more sophisticated, and will appoint the creditor to be the agent of the guarantor to sign mortgages and register them over the guarantor’s land. 

While generally a mortgage – to be registered over land – needs to be witnessed by a qualified person, that is not the case for a charge given under this sort of agreement.  The creditor can lodge a caveat securing its interest under the charge and then start court proceedings to enforce the charge which can include seeking orders to sell the land, which might include the guarantor’s home. 

It is important to bear in mind these potential liabilities, and other potential liabilities such as responsibilities for breaches of workplace health and safety laws when deciding who should be a director of a trading company.  In particular, care should be given in nominating a spouse who has no significant role in the operation of the business as a director. 

For advice concerning the structuring of businesses and responsibilities under business agreements, please contact our commercial lawyers Peter Muller at, Megan Hanneman at and Jessica Murray at