What is the difference between a guarantee and a cross-guarantee?

A guarantee is one party's promise to answer for another's debt. A cross-guarantee is a set of such promises running both ways inside a group: each named company guarantees what the others owe the lender. A company can be borrower and guarantor at once. The practical difference is reach, since one deed binds the whole group and a facility increase for one company can enlarge the liability of all, unless the deed caps it.

Can a subsidiary guarantee its parent's debt?

Generally yes, but it attracts more scrutiny than a parent guaranteeing a subsidiary. Directors have to be able to justify the guarantee for the subsidiary giving it, and the rules differ across New Zealand, Australia and the United Kingdom, particularly for subsidiaries that are not wholly owned. A guarantee given near insolvency for little benefit can be challenged. Where the debt helped fund the purchase of the guarantor's own shares, financial assistance rules may also apply in some markets.

Is a deed of cross guarantee the same as a bank cross-guarantee?

No. In Australia, a deed of cross guarantee is usually the form lodged under ASIC's wholly-owned companies relief, which runs in favour of all creditors outside the group, in exchange for relief from some reporting obligations. A bank cross-guarantee runs only to that bank, is usually supported by security, and can be called on the terms of the deed. A lender may benefit from both, and the second is the one it negotiates.

Does a cross-guarantee appear in a company's accounts?

It should, but how depends on the framework. Under IFRS-based standards a guarantee of another company's debt is generally a financial guarantee contract, carried as a liability from the start and measured for expected loss. Under FRS 102, common among UK private companies, it is generally disclosed and provided for only if payment becomes probable. Reduced-disclosure and small-company regimes require less, and in New Zealand and Australia many small private companies publish no accounts. The reliable evidence is the deed and the register of security, not a note that may be brief or absent.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Cross-Guarantee: a Worked Example

A company with no loans of its own can owe all of them.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 6 MIN READ

// THE SHORT ANSWER

A cross-guarantee answers a practical problem: a bank lends to one company, while the property, stock and cash that make the group worth lending to sit in others. Each company promises to pay what the others owe the bank, usually with its own security behind the promise. A tile importer's US$14.0m loan can recover US$13.6m when two sister companies are bound, and US$5.0m when they are not. The price is paid by those sister companies and their creditors. One with no borrowing can lose its only asset to a debt it did not draw.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 03 — Kauri Dairy Holdings. The patriarch is retiring. The bank hears about the succession plan from the accountant first. Your call first, then the senior banker's.

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PART OF What Your Bank Holds as Security

// 01 — WHY A LENDER WANTS EVERY COMPANY BOUND

A company is a separate legal person. A lender to one company in a group has no claim on the assets of another, however much the family or the holding company treats them as one business. Owners separate them on purpose: the land in one company, the trading risk in another, the brands or the staff in a third. A credit paper may be written on the group's combined cash flow, yet without a guarantee the loan can reach only the borrower's assets. The cross-guarantee closes the gap between how the group is read and where the debt sits.

It is most useful between sister companies, which are linked only by a common owner. A sister company gives a lender no reach at all unless it signs.

// 02 — HOW THE DOCUMENT WORKS

The usual form is a single deed in which each named company guarantees, jointly and severally, what every other named company owes the lender, now and in the future. Several features decide how far that reaches. The amount is commonly every debt owed to the bank, with no ceiling unless one is negotiated, so a later increase in one company's facility enlarges every other company's liability. Security often sits behind the guarantee: a mortgage or a general security agreement from each company, securing all of its liabilities to the bank, which include the guarantee.

The deed usually also postpones the guarantors' rights against each other. A company that pays under a guarantee would ordinarily have claims against the borrower and its co-guarantors, and the deed commonly stops those being pursued until the bank has been paid in full. Other terms deal with releasing a company if it is sold and with adding companies the group buys or forms. The lender can generally pursue each guarantor for the whole debt until it has been repaid, and cannot recover more than it is owed.

Limits sit outside the deed. Directors of a guarantor have to be able to justify the guarantee for that company, a question the page on corporate benefit sets out. A guarantee given for little value shortly before insolvency can be challenged by a liquidator under each market's undervalue rules. A subsidiary guaranteeing its parent's debt raises particular questions, which the upstream guarantee page works through.

// 03 — THE EXAMPLE

A family owns three sister companies, constructed for this page like every figure in it. An importer of ceramic tiles owes the bank US$14.0m. A property company owns the warehouse the importer trades from, has no borrowing of its own, and owes a builder US$0.3m. A retail company runs four showrooms and has no bank debt. Each signs an unlimited cross-guarantee and a general security agreement, and the property company adds a mortgage over the warehouse. The importer then fails.

With guarantees Without

Bank debt, importer 14.0 14.0

Importer's own security, net −5.0 −5.0

Warehouse sold, net of costs −7.8 —

Showrooms, net of prior claims −0.8 —

Bank's remaining shortfall 0.4 9.0

Bank recovers 13.6 5.0

Builder, owed 0.3 by property company — 0.3

Left for the family — 8.3

With the guarantees, the bank is nearly whole. Without them, the same loan recovers about a third, and US$8.3m stays with the family: US$7.5m from the warehouse after the builder is paid, and US$0.8m from the showrooms. The retail company is assumed to have no other creditors.

Now read the property company's position. Its accounts showed one asset, no bank debt and a small trade creditor. It has just paid US$7.8m towards a loan it did not draw, and its builder gets nothing, because the mortgage ranked ahead. The right it gained against the importer for what it paid is worthless, and was postponed behind the bank in any case.

// 04 — NOT THE AUSTRALIAN DEED OF CROSS GUARANTEE

In Australia the phrase has a second, specific meaning. Under ASIC's wholly-owned companies relief, a holding entity and its wholly-owned companies can lodge a deed of cross guarantee as a condition of being relieved from some financial reporting obligations. The instrument was remade in 2026, and ASIC issues the form of deed. That deed does not run to one bank. It guarantees, for the benefit of all creditors outside the group, payment of debts provable in the winding up of a group company, and it applies once the winding-up conditions in the deed are met.

A lender reading an Australian group's accounts should therefore keep the two apart. The ASIC deed can be useful, since it gives an unsecured claim against the other group entities. It gives the bank no security and no ranking over other creditors, and it is no substitute for a guarantee written for the facility. It also differs from a cross-default clause: cross-default lets a lender act when another debt fails, whereas a cross-guarantee gives it someone else to collect from.

DEFINED IN ONE PARAGRAPH → · THE UPSTREAM GUARANTEE → · THE GUARANTOR COVERAGE TEST →

// 05 — WHERE IT DECIDES A FILE

The deed is why a group can be assessed as one borrower, and the lender's first task is to confirm that it matches the assessment. Every company whose cash or assets the paper counts should be a named party, and a company formed or bought later should be joined. A lender also checks that a guarantee does not breach a negative pledge or a restriction in another lender's documents, and that a company it is relying on is not already bound to someone else.

The guarantee's second reader is whoever lends to, or audits, a guarantor. Full-form accounts should disclose the guarantee, but a small company's accounts may say little, and a New Zealand company that is not large may prepare only minimal reports to Inland Revenue's requirements and publish nothing. So a supplier or a second lender cannot rely on silence. The guide for auditors treats cross-guarantees as an item easily missed. When a company leaves the group, the release has to be in the sale documents, or the buyer may acquire the old group's debt with it.

THE BANK IN YOUR AUDIT FILE → · CORPORATE BENEFIT → · STRUCTURAL SUBORDINATION →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Australian Securities and Investments Commission, Pro Forma 24: Deed of cross guarantee (issued September 2026) — clauses 1 and 3 — Each group entity guarantees to creditors outside the group payment in full of debts admissible to proof in a group entity's winding up, under ASIC Corporations (Wholly-owned Companies) Instrument 2026/533 — section 04.
Australian Securities and Investments Commission, Deeds of cross guarantee — The deed must be lodged with ASIC, and every entity in the closed group must be included, for a wholly-owned company to rely on the relief — section 04.

// QUESTIONS PEOPLE ASK

What is the difference between a guarantee and a cross-guarantee?: A guarantee is one party's promise to answer for another's debt. A cross-guarantee is a set of such promises running both ways inside a group: each named company guarantees what the others owe the lender. A company can be borrower and guarantor at once. The practical difference is reach, since one deed binds the whole group and a facility increase for one company can enlarge the liability of all, unless the deed caps it.
Can a subsidiary guarantee its parent's debt?: Generally yes, but it attracts more scrutiny than a parent guaranteeing a subsidiary. Directors have to be able to justify the guarantee for the subsidiary giving it, and the rules differ across New Zealand, Australia and the United Kingdom, particularly for subsidiaries that are not wholly owned. A guarantee given near insolvency for little benefit can be challenged. Where the debt helped fund the purchase of the guarantor's own shares, financial assistance rules may also apply in some markets.
Is a deed of cross guarantee the same as a bank cross-guarantee?: No. In Australia, a deed of cross guarantee is usually the form lodged under ASIC's wholly-owned companies relief, which runs in favour of all creditors outside the group, in exchange for relief from some reporting obligations. A bank cross-guarantee runs only to that bank, is usually supported by security, and can be called on the terms of the deed. A lender may benefit from both, and the second is the one it negotiates.
Does a cross-guarantee appear in a company's accounts?: It should, but how depends on the framework. Under IFRS-based standards a guarantee of another company's debt is generally a financial guarantee contract, carried as a liability from the start and measured for expected loss. Under FRS 102, common among UK private companies, it is generally disclosed and provided for only if payment becomes probable. Reduced-disclosure and small-company regimes require less, and in New Zealand and Australia many small private companies publish no accounts. The reliable evidence is the deed and the register of security, not a note that may be brief or absent.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Credit sanctionerHolds delegated authority and signs — or declines — the lending the front line brings.
Legal counselAdvises the bank on what it can do, drafts and negotiates what it signs, and manages what goes wrong.
Lending operations officerTurns an approval into a working facility — documentation, security, drawdown, and the register that says what the bank actually holds.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE CALL · THE LOAN · PROTECTION

A borrower fails. The bank holds a floating charge over its stock and debtors. Employees are owed wages, and the tax authority is owed sales tax.

Who may be paid before the bank from those assets?

7 MORE ON THE LOAN · PROTECTION →WHERE DO YOU READ FROM? THE PLACEMENT →

THE READING ROOMIN ONE PARAGRAPHCross-guarantee What is a cross-guarantee in a group of companies?