"Where a debt results from a guarantee, the sequence of events is commonly as follows. At the time of the execution of the guarantee, the guarantor undertakes a contingent liability. The contingencies normally include, although they are not necessarily limited to, default on the part of the principal debtor, and the making of demand upon the surety by the creditor. At the time of executing the guarantee, such a liability would not normally be shown as, or included in, a liability in the company's balance sheet, but it would be referred to in a note to the accounts. Of course, the circumstances of any individual case may require special consideration, and I refer only to the usual position. ... Subsequently, events may occur by reason of which the contingent liability matures into a presently payable debt.... Guarantees are sometimes executed in advance of any principal debt coming into existence. A person may execute a guarantee in favour of a bank in a case in which the bank has not yet made an advance to its customer. In such circumstances it is not normally said that the guarantor, upon the execution of the guarantee, incurs a debt. Nor would it normally, and apart from some special context, be said that a person who gives a guarantee in respect of a debt incurred by another thereupon himself incurs a debt, at least if the principal debtor is apparently solvent and not in default. Equally, however, on any use of language, in the events that have occurred in a case such as the present, there ultimately comes a time when the guarantor would be said to be indebted to the creditor. In the present case, a guarantee was executed, the principal debtors became insolvent and went into default, and demand was made by the creditor under the guarantee. In those circumstances it seems difficult to deny that at some stage Equiticorp incurred a debt to the Bank. The difficulty about concluding that such a debt was only incurred when demand was made is that it produces a result which in many cases involving the application of s 556 would be unjust, and, indeed, absurd. Suppose, for example, that company A gave a guarantee to a bank in respect of the liabilities to the bank of company B, and the guarantee was executed in Year 1. At the time, both companies were financially sound. Suppose that some years later, at a time when both companies are in serious financial difficulties, company B goes into default and the bank then calls upon the liability of company A under the guarantee. It would be unjust to fix the directors of company A with criminal or civil responsibility under s 556 by reference to expectations as to the financial capacity of company A at the time when the bank made a demand under the guarantee, because the commitment was undertaken in Year 1 and (let it be assumed) could not thereafter be abrogated. Yet that would be the consequence that would follow if company A were treated as having incurred a debt to the bank when demand was made.... Before going to the appellants' primary submission, it is convenient to deal with a subsidiary argument which directs attention to the nature of Equiticorp's obligations under the guarantee. This argument begins with the proposition that a liability cannot be a debt for the purposes of s 556 if it entails an obligation to pay unliquidated damages as distinct from a liquidated sum. This was not challenged by the respondent, and it is unnecessary to examine the proposition further, or to seek to explore the boundaries between liquidated and unliquidated claims: cf Jelin Pty Ltd v Johnson (1987) 5 ACLC 463. The argument goes on to contend that, as a matter of construction of the guarantee presently in question, any liability under it is a liability for damages, and there is no debt involved: cf Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 254-257. As Mason CJ pointed out in Sunbird Plaza, a creditor's rights against a guarantor depend upon the terms of the guarantee and the nature of the obligation performance of which is guaranteed. In the present case the obligations of the two members of the Equiticorp group to the Bank were simply to pay their debts to the Bank. They had received financial accommodation from the Bank, and the Bank and the two companies were referred to in the instrument of guarantee and indemnity as lender and borrowers respectively. The relevant terms of the instrument are set out above. Clause 1 provides that Equiticorp guarantees the due and punctual payment of moneys owing to the Bank by the two borrowers. Clause 2 provides that, on default by the borrowers, Equiticorp will on demand pay to the Bank the moneys secured, that is to say, the moneys owing by the borrowers to the Bank including fees, interest and similar charges." Mason CJ said (at 255): `If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract.' The present case falls within the first of those two categories. The Bank's claim against Equiticorp is properly to be regarded as a claim for a liquidated sum: cf Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129; [1980] 2 All ER 29; Re Standard Insurance Co Ltd (In Liq) and the Companies Act 1936 (1969) 91 WN (NSW) 654 at 657-658; [1970] 1 NSWR 392 at 395 per Street J. For that reason the appellants' subsidiary argument must fail. The same conclusion presents an initial difficulty for the appellants' main argument. Equiticorp (on the factual assumptions made for the purposes of the separate question of law being considered) owes a debt to the Bank. The Bank's claim for a liquidated sum flows from the making of a conditional agreement and the subsequent fulfilment of the condition, that is to say, the failure of the borrowers to pay their debts to the Bank, and the making of demand upon Equiticorp. It may be accepted that in some commercial or legal contexts it would be unusual to describe Equiticorp as having incurred the debt in question upon executing the guarantee. It is equally true, however, that even in those contexts it would be natural and proper to say that at some stage Equiticorp incurred a debt to the Bank. The appellants (for reasons explained above) are concerned to argue that Equiticorp did not at any stage incur a debt to the Bank within the meaning of the section. This demonstrates that, whichever way the present dispute is resolved, the result will involve some departure between the language of the statute as construed by the Court and the use of language in the contexts to which reference has just been made.... It is necessary, of course, to guard against the error of considering the operation of the statutory language only by reference to the problem currently under consideration. Words such as `conditional' or `contingent', when used in relation to different types of obligation, can have different shades of meaning. There are types of contractual arrangement, of which the cases on s 556 referred to above provide examples, where it is entirely reasonable for a provision such as s 556 to operate upon the basis that a debt is incurred, not when a contract is entered into, but when some later event under the contract occurs..... `Debt' is capable of including a contingent liability. The word was used in that sense in s 291 of the Companies Act 1961, which referred to `debts payable on a contingency'. That expression did not involve a contradiction in terms. Dictionaries define `debt' as a liability or obligation to pay or render something. Such a liability may be conditional as well as present and absolute.... Similarly, the word `incurs' takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved uncertain. Once it is accepted that `debt' may include a contingent debt then there is no obstacle to the conclusion that, in the present context, a debt may be taken to have been incurred when a company entered a contract by which it subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time. This is such a case."