Quasi-security

Quasi-security

Quasi security is the common term describing the various ways of enhancing a creditor's protection against a debtor without creating a security interest.

Third party support

A third party may agree to provide financial support to a debtor in favour of the creditor by providing:

•
a guarantee—an undertaking given by one party (the guarantor) to another in respect of a debtor performing its obligations to ensure that such obligations are performed (whether by the debtor or the guarantor) if the debtor fails to perform them. A guarantee supports a primary obligation between two parties other than the guarantor but is itself a secondary obligation; so if the underlying contract is void, set aside or the debtor is discharged from its obligations then the guarantor's obligations fall away (see Practice Notes: Guarantees, Guarantees—commercial benefit and Formalities for creating a guarantee)
•
an indemnity—similar to a guarantee in that one party undertakes to be responsible for the obligations and liabilities of a third party should such third party fail to perform its obligations. However, it provides a creditor with more protection than a guarantee as it is a primary obligation

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