Personal Guarantees: Don’t Give Them
Avoid giving personal guarantees as security for payment where-ever possible. A personal guarantee can commit all of your personal assets to the payment of a debt if it is not paid as agreed and many personal guarantees can last as long as it takes for the debt to be repaid.
Think that any debt you secure with a personal guarantee will be repaid in full and on time?
I urge you to think again and consider the following;
Company U buys supplies from Supplier V. Supplier V states that they will no longer supply Company U unless a company director signs a personal guarantee for payment. The agreement contains the following clause in the fine print:
To secure payment to you of any amounts outstanding I charge all of my property both real and personal with the amount of my indebtedness until discharged
When the Company U director who signed this sold his house, Supplier V claimed that he had to pay the outstanding Company U account out of the proceeds of sale (based on Clark v Raymor [1982] Qd R 479).
Reader’s Tip
If you give personal guarantees that are not limited in amount and time, you could jeopardise your own and even your dependants’ financial future. However, I recognise that it may not be practical for a business to never give guarantees. If you are in a position where a personal guarantee is your only option, make sure it is limited to an amount you can afford and to a time frame you are comfortable with. I can advise you on how to achieve this.
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Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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