All-Monies Clause: What It Secures and When It Lets Go

A business's borrowing changes shape every year. The overdraft limit moves with the season, a term loan is added for a machine, the bank issues a performance bond for a contract, a forward exchange line opens for an export order. If each needed its own mortgage and registration, every change would mean new documents and a fresh place in the queue behind anyone who registered in between. The all-monies clause avoids that by defining the secured money as everything, so the security taken on the first day covers the facility added in the fifth year.

It also closes a gap. A customer with three facilities who repays one could otherwise ask for its security back while two are still outstanding. Under an all-monies document the question does not arise: the security answers for the whole debt, and a partial release of one asset is a credit decision the bank makes, not a right the customer holds.

Wording varies, but the working parts recur. The secured amount is defined to include money owed now or later, actually or contingently, alone or jointly with anyone else, on any account, with interest, fees and enforcement costs on top. The security is stated to be continuing, so it is not discharged when a balance touches zero for a day. And release is in the bank's hands: the document ends when the bank signs a discharge, which it gives against a payout figure that captures everything secured.

Contingent amounts are the part customers overlook. A bond or guarantee issued on the customer's behalf is not a loan until it is called, but the customer has promised to reimburse the bank if it is, and that promise is secured money. So is the close-out amount on a hedge. Either can keep the security alive after every loan has been repaid.

Priority is a separate question. How far later advances under an all-monies security rank ahead of a lender that took second security in the meantime is governed by each market's land and personal property law and, in practice, by a deed of priority capping the first lender's priority amount.

A civil contractor, constructed for this page, borrowed US$1.5m to buy its yard. It gave a first mortgage over the yard and a general security agreement over the company, both all-monies, and its director gave a guarantee limited to US$500,000. Over four years the bank added an overdraft with a US$250,000 limit and issued US$600,000 of performance bonds to councils the contractor works for.

The contractor sells the yard for US$2.2m, expecting to repay the term loan, now US$1.1m, and keep the rest. The bank's payout figure shows what the mortgage actually secures:

The bank need not take it all. The general security agreement and the director's guarantee also secure the overdraft and the bonds, so the bank can release the mortgage against repayment of the term loan alone, leaving US$1.1m with the contractor and relying on the remaining security for the US$780,000 still drawn or contingent. That is the credit officer's decision: whether what remains still covers what remains, for a business that has just sold its main asset.

The guarantee works the same way within its cap. Because it is all-monies it reaches the bonds as well as the loans, but the director's exposure stops at US$500,000, plus whatever the document adds for interest and costs.

The nearest neighbour is specific security, written to secure one named facility or a stated sum. A specific mortgage ends when its loan is repaid. Lenders use it where an all-monies reach would be unfair or unwanted, such as a third-party mortgage over a parent's house, or a limited guarantee whose giver should know the most it can lose. A document can combine the two, securing all money owed but capping what the bank may recover from that asset or that person.

In Australia, the industry's Banking Code of Practice sets the combination for the guarantees it covers: those given by individuals for loans to individuals and small businesses. The guarantee must be limited to a specific amount or category of amounts, or to the value of a named property; it must warn the guarantor if it may cover future facilities; and a higher limit needs the guarantor's written acceptance. In New Zealand and the UK the starting point is the guarantee's own wording, read with whatever banking code or consumer-credit rules apply to the guarantor.

The clause is also distinct from cross-default. Cross-default decides when a lender may call its loan because another debt has gone bad; the all-monies clause decides what the security answers for once it is enforced. A file can have either without the other.

DEFINED IN ONE PARAGRAPH → · WHAT YOUR BANK HOLDS AS SECURITY → · PERSONAL GUARANTEES →

It decides three moments. At a refinance, the incoming lender asks the outgoing bank for a payout figure, and a figure that leaves out a bond line or a hedge leaves the old security registered after settlement. At a sale, it turns a release into a negotiation about what the bank keeps. And when a guarantor asks what they have signed, the answer turns on the limit and the definition of guaranteed money, not on the loan they were told about at the time.

For a lender the clause is protection that works quietly, and its risk is that it works too quietly. A guarantor who learns at enforcement that the guarantee reached a facility added years later is the guarantor most likely to dispute it. Telling guarantors when facilities change, and keeping their limits current, costs little beside that dispute.