Seller beware: Discharge of guarantee after disposal of shares


In a share sale and purchase transaction, the transfer of shares to the buyer and payment of consideration to the seller may not necessarily signify the end of the parties’ obligations. After completion of the sale and purchase of shares, it is important to the seller to have all guarantee given to secure any loan granted to the target company to be discharged.


If a corporate guarantee has been given by a corporate seller or a personal guarantee has been given by an individual seller or a director of a corporate seller for a loan granted by a financial institution to the target company, it is important to have a provision in the share sale and purchase agreement for the guarantee to be discharged after the completion. The discharge would be subject to the approval by the relevant financial institution. Typically, the financial institution would require a new guarantee or other security to replace the guarantee from the seller. The buyer of the shares, who is also the new shareholder, would usually step into the shoes of the seller and provide a new guarantee if the relevant financial institution is satisfied that the new shareholder is of good financial standing.


As the process to discharge the guarantee from the seller may take time, there should be a provision in the share sale and purchase agreement that the purchaser would indemnity the seller or the relevant director of the corporate seller who has given the guarantee, pending the discharge of the existing guarantee.

Listing Requirements

In respect of companies listed on Bursa Malaysia Securities Berhad, an announcement and a circular to shareholders must be issued if the sale and purchase transaction meets the threshold set out in the Listing Requirements. In the event an announcement and a circular to shareholders are required, it should be noted that the Main Market Listing Requirements and the ACE Market Listing Requirements provide that such announcement and circular to shareholders must specify the following:

  • any liabilities, including contingent liabilities, in relation to the disposal which remain with the listed corporation, together with the details and justification for such arrangements; and
  • any guarantees given by the listed corporation to the purchaser or target company.

Disclosure on the arrangement of guarantee given in respect of any loan obtained by the target company is usually addressed in this section of the announcement and circular to shareholders. As such, it is prudent to have an express provision in the sale and purchase agreement in relation to such arrangement of guarantee in order for the necessary disclosure to be made in the announcement and circular to shareholders.

The information in this article is intended only to provide general information and does not constitute legal opinion or professional advice.

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