Personal Guarantees: What You Sign for Your Company
Running your business through a company generally keeps the company's debts separate from your own assets. A personal guarantee gives that protection away for the debt it covers. Banks, landlords, equipment financiers and trade suppliers ask for them routinely, and most owners sign without negotiating.
What the usual clauses mean
Guarantees vary, but most contain these clauses:
- Continuing guarantee. It covers the company's debt as it changes over time, not just what is owed on the day you sign, and it continues until you're released.
- All moneys. It covers everything the company owes that creditor, now or in the future, not just the loan or lease you're signing for.
- Joint and several. If you and your co-owners all sign, the creditor can recover the whole amount from any one of you. The one who pays more than their share can then seek a contribution from the others, but only if they can pay.
- Indemnity and principal debtor clauses. These are designed to keep you liable even if the company's own obligation turns out to be unenforceable.
- Waiver of defences. You give up rights you would otherwise have, for example if the creditor gives the company more time to pay or changes the loan.
- Charging clause. It gives the creditor security over your property, which can include your home.
In Queensland, a guarantee can be enforced only if it's in writing and signed by the guarantor, and since 1 August 2025 that expressly includes an indemnity (Property Law Act 2023 (Qld), s 69). An electronic signature can meet that requirement, and so can a guarantee in the fine print of a credit application you signed.
What to negotiate
Creditors expect some negotiation, particularly with established businesses. Ask for:
- A cap on the amount you guarantee.
- A specific debt, such as one loan or one lease, rather than all moneys.
- An end point, such as release when the loan is repaid, after a period of good payment, or when you sell your shares.
- For a lease, a cap tied to a number of months' rent, and a release when the lease is assigned.
- A limit on who signs. If your spouse isn't involved in the business, think carefully before they guarantee its debts, and make sure they get their own advice.
If the lender is a bank
Banks that subscribe to the Banking Code of Practice give guarantors of loans to individuals and small businesses some protections, set out in Part B6 of the Code. Its small business test requires turnover under $10 million, fewer than 100 full-time equivalent staff and total debt under $5 million. The protections include a guarantee limited to a specific amount, the amounts owing under a specific loan, or the value of a specified property, prominent warnings to get independent legal and financial advice, the right to withdraw before the bank first provides credit, and a commitment to enforce against the borrower's own security first, with some exceptions, such as where you agree otherwise in writing after a default.
The protections are narrower for directors. A director who guarantees their own company's loan has no right to a meeting with the bank without the borrower present, and can choose to sign without the usual waiting period. The Code binds subscribing banks only. It doesn't apply to non-bank lenders, landlords or suppliers.
Selling your shares or resigning doesn't release you
This is the trap I see most often. Selling your shares, resigning as a director or stepping back from the business doesn't end your guarantee. You stay liable to that creditor until it releases you, or the guarantee ends under its own terms. Get any release in writing.
So, when you sell, getting written releases from every creditor you've guaranteed should be a condition of the deal, or the buyer should give you an indemnity and replace your guarantee with their own.
Retail shop leases have a statutory exception, but only on an assignment of the lease, not a share sale. The outgoing tenant and its guarantor are released from the new tenant's later defaults if the outgoing tenant met the disclosure rules and its statement wasn't materially incomplete, false or misleading (Retail Shop Leases Act 1994 (Qld), ss 22B and 50A). For other commercial leases, your release generally depends on the lease and what the landlord agrees to.
Personal liability without a guarantee
Even without a guarantee, a director can be personally liable for some company debts.
- Director penalties. A director can be personally liable for the company's unpaid PAYG withholding, GST and super guarantee charge (Taxation Administration Act 1953 (Cth), Sch 1, Div 269). If PAYG withholding or GST is reported more than 3 months late, or not at all, the penalty can be cleared only by paying it. Since 1 July 2026, for super guarantee charge, the director avoids that result only if the company lodges a voluntary disclosure statement within the time allowed, which is no more than 60 days after the payday (s 269-30).
- Insolvent trading. A director can be liable for debts the company incurs while there are reasonable grounds to suspect it is insolvent (Corporations Act 2001 (Cth), ss 588G and 588M).
If the guarantee is called on
If the company can't pay, the creditor can usually come straight to you, even after liquidation, subject to the guarantee and, for a bank, the Code. During a voluntary administration, a guarantee of the company's debts can't be enforced against a director, or a director's spouse or relative, without the court's leave (Corporations Act, s 440J). That gives you breathing space, not a release.
Courts set guarantees aside only in limited cases, such as where the guarantor was at a special disadvantage that the lender took advantage of (Commercial Bank of Australia Ltd v Amadio [1983] HCA 14), or where a wife who gained nothing from guaranteeing her husband's debts didn't understand it and the lender didn't explain it (Garcia v National Australia Bank Ltd [1998] HCA 48). Neither usually helps a director whose own company benefited from the borrowing.
Keep a list
Most owners can't tell me, without checking, every guarantee they've given. Keep a list: the creditor, the date, the limit and whether you've been released. Review it whenever you refinance, sell or a co-owner leaves.
If you've been asked to sign a guarantee, or you want to get out of one, you can book a consultation with me to review it.
The law in this article is stated as at 30 August 2026.
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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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