Personal Guarantees in Alberta: A Signature Is Not Enough
You do business and provide credit to a corporate client based in Alberta. Let's call them Retail Company.
Retail Company has fallen behind on their payments but tell you they can turn it around in the next few months. You are concerned because Retail Company has no assets to speak of other than their accounts receivable and if you continue extending credit you might not be able to recover any of it from the company.
As often happens, Fred Debtor, the owner of Retail Company, offers to solve this problem by personally guaranteeing his company’s debt to you. He even agrees to put that in writing, and sends you a letter with his original signature on it.
You have now protected yourself from the risk of Retail Company going under. Or have you?
In Alberta, you almost certainly have not.
Alberta has unique legislation called the Guarantees’ Acknowledgement Act that requires certain formalities to be followed before a Personal Guarantee will be enforceable by the Alberta Courts. These requirements often surprise creditors who typically operate outside of Alberta, and we have several times seen the situation where a Guarantee that would be valid in Manitoba or Ontario, for example, is not enforceable in Alberta.
Just as in other Provinces, in Alberta a Personal Guarantee must be in writing. Additionally, however, it must also be signed by the Guarantor in front of a Notary Public and must have a certificate attached.
The Notary Public is required to attach their certificate stating that the legal effect of the Personal Guarantee has been explained to the Guarantor. Without this certificate, the Guarantee is invalid.
In our example, because there is no certificate and because Mr. Debtor did not sign the Guarantee in front of a Notary Public, you will have done nothing to improve your position as a creditor of Retail Company. You would not be able to enforce against Mr. Debtor’s assets.
For this reason, it is always prudent to discuss these kinds of arrangements with Alberta counsel, prior to entering into them. A little bit of caution taken at that point can make all the difference in whether you will later be able to collect on your debts.