A guarantee is when you promise a creditor that if the debtor does not pay, you will pay on the debtor’s behalf. It is often presented as “just a signature” or a pre-requisite in a loan, but in Cambodia it is a legal promise that can put your savings, your car and your home at risk.
It is worth noting that a guarantee under the Cambodian Civil Code is not limited to money. A guarantor can also promise to perform an obligation owed by another person (the obligor). If the obligor fails to perform, the obligee can ask the guarantor to perform that obligation instead.
That said, this Legal Press focuses on 3 common situations involving a guarantee under a loan and explains what the key articles of the Cambodian Civil Code say. For simplicity, we refer to the creditor as the “lender” and the debtor as the “borrower” below.
Case 1: You guarantee your best friend’s debt
Your best friend dreams of opening a mini-mart. A microfinance institution (MFI) agrees to lend USD10,000, but on one condition: someone must sign as guarantor for the loan.
Your friend asks you to be his guarantor and says: “Don’t worry, it’s just a formality. I’ve never missed a payment in my life.” You trust your friend. At the MFI branch, you sign where the officer points to, without reading the small print and without anyone explaining it to you.
A year later, your friend misses 3 instalments and the MFI asks you to pay your friend’s debt.
1. What exactly did you agree to when you signed?
Based on Article 900(1), a guarantee is created when you promise the lender that, if the borrower fails to do what he or she owes, you will do it instead, and the lender accepts your promise.
📌 You are making a contract with the MFI, not with your friend. Your promise to pay the debt is not a favour between friends; it is a legal duty you owe directly to the lender.
2. How much can the MFI ask you for?
Article 903(1) says the guarantee covers the loan itself and also interest, penalties, damages and any other costs that come with the debt.
📌 So you may owe more than USD10,000 after months of late interest and penalties.
3. Did the MFI have to explain anything to you?
Yes. Article 900(3) says that when giving guarantees is not your business (you are an ordinary person), the lender must give you all the important information about the debt, so that you can think it over properly. Article 900(4) adds that if the lender fails to do so, you may cancel the guarantee.
📌 If nobody at the branch explained the loan to you, this may be your strongest argument for not being bound by the guarantee.
4. Can the MFI come after you before it even tries to collect from your friend?
Yes. This is where Cambodian law surprises many people. In some countries, a guarantor can tell the lender “ask the borrower first” or “take the borrower’s assets first”.
Article 908(1) says a guarantor cannot (i) make the lender demand payment from the borrower first, or (ii) avoid paying by pointing out that the borrower has enough assets and is easy to collect from. Article 908(2) adds that, unless your guarantee contract says otherwise, you and the borrower are each responsible for the whole debt.
📌 The MFI can choose to claim the full unpaid amount from your friend, from you, or from both, as if you had borrowed the money yourself.
5. If you pay, can you get your money back from your friend?
Yes, in most cases. When you pay the MFI, you are paying a debt that is really your friend’s, so the law gives you a right to recover that money from him. How much you can recover depends on whether your friend asked you to be his guarantor.
If your friend asked you (as in our example), Article 911(1) and (2) lets you claim from him the amount you actually paid, plus interest from the day you paid and damages. For example, if you pay the MFI USD3,000 for the missed instalments, you can claim USD3,000 from your friend, plus interest running from the date of your payment and any loss you suffer because of it.
You also do not always have to pay first. In some situations, for example when the debt has already fallen due, Article 911(3) even lets you claim before you have paid. In practice, this means that once the MFI demands payment, you can already ask your friend to settle the debt or to put you in funds, instead of waiting until you have used up your own savings.
If your friend had not asked you to guarantee (for example, you offered to sign on your own initiative), Article 912 limits your claim to what your friend actually gained from your payment. In other words, you can only recover the benefit your friend received from your payment, so this claim is generally narrower than the one described above and you should not assume that you will get back everything you paid, together with interest and damages.
📌 Either way, keep a record of your payment (such as the MFI’s receipt) and of whether your friend asked you to sign, because these facts decide how much you can claim.
6. Should you tell your friend before you pay upon the MFI’s demand?
Yes, you should. Under Article 913(1), if you pay without telling the borrower that the lender has demanded payment, the borrower can use against you any defence he or she had against the lender.
Under Article 913(2), if you do not tell the borrower after you pay, and the borrower pays the lender again in good faith, the borrower’s payment may be treated as the valid one.
📌 A short message to your friend avoids this risk.
⭐ It was never “just a formality”. From the day you signed, you became legally responsible for your friend’s loan, including interest and penalties, unless the guarantee can be cancelled or ended (see Case 3 for what makes a guarantee valid).
So, you should read the whole document, ask for a copy of the loan agreement, write the amount yourself only if you truly accept it, insist on a maximum amount and an end date, and consider whether the borrower can give you something in return, such as security over an asset. Above all, sign only if you would be willing, and able, to repay the loan yourself.
Case 2: You, as one of the shareholders, guarantee the company’s debt
You own 50% of a food and beverage company together with your business partner. The company borrows USD80,000 from a bank to buy a new oven and open a second outlet. The bank agrees, but asks both of you, as shareholders, to sign a personal guarantee covering “all amounts the company owes the bank from time to time”. “It’s the company’s loan, not mine,” you think, and sign.
A year later, the outlets close and the bank demands that you pay the company’s debt.
1. Doesn’t a company protect its owners?
Normally, yes. Article 147 of the Law on Commercial Enterprises says that a shareholder’s liability to the company is limited to the price of the shares he or she subscribed for. In plain words, the most you can lose as a shareholder is what you put in for your shares. If the company cannot repay its loan, the bank generally cannot chase your personal assets just because you are a shareholder.
But if you signed a personal guarantee, that is a separate contract made in your own name.
📌 By signing it, you stepped outside the company’s protection and agreed to answer for the company’s debt with your own savings, car and house.
2. How do you share the burden with another shareholder guarantor?
Article 910(1) says each of the guarantors is responsible for the entire debt towards the lender.
Under Article 901(2), unless they agreed with the lender to split it and limit each person to his or her own share, the burden is shared equally between the co-guarantors.
📌 So, the bank can claim the full amount from you. As between the co-guarantors, the burden is presumed to be shared equally; however, if you pay more than your share, you may claim indemnification from the other guarantor (see question 4 below under this Case 2).
3. What does “all amounts the company owes the bank from time to time” mean?
This is an open-ended guarantee: it covers debts that may not even exist yet, as long as they arise from an ongoing relationship (the company’s borrowing from this bank). The Civil Code calls it a “floating guarantee” (Article 902).
Because it is so wide, the law gives you some protection:
It must say which relationship it covers. Under Article 902(1), an open-ended guarantee is valid only if it names the ongoing relationship the future debts come from, for example the company’s banking facility with that bank.
You may end it if no end date is stated. Under Article 902(2), if the guarantee has no end date, you may end it once a reasonable time has passed since you signed. Based on the Article 902(2), it is silent on whether the bank’s consent is required for the guarantor to do so. However, as a common formality, you would need to inform the bank that you are ending the guarantee.
You may end it immediately if the business is in trouble. Under Article 902(3), if the company’s business or finances have got substantially worse since you signed, you may end the guarantee straight away.
Because ending the guarantee only affects future debts, the bank remains fully protected for the money it has already lent. This does not leave the bank in a passive position. Once the bank is informed, it can decide whether to keep lending to the company, ask for a replacement guarantor or other security, or review the credit facility. This is also why banks commonly set an end date and a maximum amount in the guarantee from the start.
📌 Had you watched the company’s finances closely, you could have ended the guarantee as soon as the business started to struggle and stopped your exposure from growing.
4. If you pay the bank, can you get your money back?
Yes. You have 3 important rights:
Claim the amount you actually paid, plus interest from the day you paid and damages (see question 5 under Case 1).
Step into the bank’s shoes. After you pay, you take over the bank’s rights against the company, including any security that backs them (Article 916(1)). The bank must hand over the loan documents and any security it holds (Article 917).
Claim a share from the other shareholder. If you pay the full amount, you may claim from your partner his or her share (presumed to be half), plus interest and damages (Article 915(1) and (2)).
The notice rules in Case 1 (Article 913) apply here too: tell the company before and after you pay.
⭐ Your limited liability as a shareholder does not protect you here. Two more practical points. First, selling your shares does not end the guarantee. You should end it after a reasonable time (as per Article 902(2)) or obtain a written release from the bank as part of the share sale. Second, property acquired during marriage is generally the couple’s common property (Articles 972 and 973 of the Civil Code), which is why banks often ask the guarantor’s spouse to sign as well.
Case 3: You are the lender and you ask for a guarantor
You are about to lend money, whether USD10,000 to a small business owner or a larger loan to a company. A promise from the borrower alone does not feel like enough, so you ask for someone else to sign as guarantor. You want to be sure that, if the borrower stops paying, the guarantee will hold up and you can collect.
1. What must you do to make the guarantee valid and enforceable?
These are the key points for you to check:
Get agreement from both sides. The guarantor promises you, and you accept that promise (Article 900(1)). Usually both of you sign the same document.
Put it in writing. If the guarantee is not recorded in a document, the guarantor may cancel it at any time, unless he or she has already chosen to pay under it (Article 901(1)). A verbal “don’t worry, I’ll cover him” gives you very little protection.
Have the guarantor write the amount by hand. For a money debt, the amount guaranteed must be written in the guarantor’s own handwriting. Otherwise, the guarantor may also cancel at any time (Article 901(2)).
Describe the debt clearly. The document must describe the guaranteed debt specifically, such as the loan agreement, the parties, the date and the amount (Article 901(3)). For an open-ended guarantee, name the ongoing relationship (Article 902(1)) and, ideally, set a maximum amount and an end date.
Give the guarantor full information. If the guarantor is an ordinary person (giving guarantees is not his or her business), you must give all the important information about the debt and keep a record that you did. Otherwise, the guarantor may cancel the guarantee (Article 900(3) and (4)).
Make sure the debt itself is valid. Without a real debt underneath, there is no guarantee (Article 904(1)).
Check who is signing. When you require the borrower to provide a guarantor, the guarantor must be legally able to make binding contracts and have enough money to pay (Article 907(1)). If a company is the guarantor, check its articles of incorporation and obtain a board resolution authorizing the guarantee, signed by an authorized person.
2. What can you do if the borrower stops paying?
If the guarantee is valid, you are in a strong position:
You do not have to ask the borrower first or go after the borrower’s assets first (Article 908(1)).
Unless the guarantee says otherwise, you may claim the whole unpaid amount from the borrower, from the guarantor, or from both (Article 908(2)).
The guarantee covers not only the loan but also interest, penalties, damages and other costs of the debt (Article 903(1)).
If there are several guarantors, you may claim the full amount from each, unless you agreed with them to split it (Article 910(1)).
If the guarantor refuses to pay, you must still obtain a court judgment and enforce it through the court process. You cannot simply take the guarantor’s property.
Keep in mind that the guarantor can use the borrower’s defence against you (Article 905(3)), and that the guarantee ends when the loan is repaid (Article 904(3)). Once the guarantor has paid you, you must hand over the loan documents and any security you hold (Article 917).
⭐⭐ Signing as a guarantor in Cambodia is not a formality. Unless agreed otherwise, the lender can claim the whole debt from the guarantor and does not have to chase the borrower first. Whether the debt is your friend’s or your company’s, it becomes your own once you sign, and being a shareholder does not shield you from a personal guarantee, although an open-ended guarantee can be ended for the future.
For lenders, a guarantee works best when it is in writing, the amount is handwritten by the guarantor, the debt is clearly described and the guarantor has been properly informed. A guarantor who pays can claim reimbursement and step into the lender’s shoes, but that right is only as good as the borrower’s ability to pay.
🚨The information in this article reflects the law as at the date of publication and is for general reference only. It does not constitute comprehensive legal advice. If you need further guidance, feel free to reach out to us at connect@vlplaw.co.