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Personal Guarantees

If you are the business owner, you can check to see if your customer is run by a company, by visiting either http://www.abr.business.gov.au/ or the ASIC register, which includes a database of companies and business names. More information about business names is available on the ASIC website.

If your customer is a company, you can ask the directors to provide a personal guarantee the payment of any debt owed to your business. That way if the company is wound up, you have recourse to the assets of the directors instead. Care should be taken with the wording of the guarantee, and it is best to get professional advice to ensure that the guarantee is enforceable.

If you are a director and are being asked by your supplier to sign a personal guarantee, don’t be surprised. Obtain independent legal advice about the effect of the guarantee, and ensure that you read and understand the terms of the guarantee carefully before signing. If you are not comfortable with signing a personal guarantee, then think about alternatives to ensure that your company can pay for goods and services. You could also negotiate the terms on which you agree to guarantee your company’s debts including:

  • Offering a bank guarantee instead
  • Limiting the amount for which you are liable, or the length of time that the guarantee lasts
  • Making the guarantee limited to your time as a director (so that if you resign, you are no longer liable)

It is also important to keep records of the personal guarantees that you give as a director. If you decide to exit the company and resign as a director, you should ensure that you contact each creditor and ask for a written confirmation of your release from your obligations under the guarantee for further debts incurred by the company after your resignation.

Personal Guarantees  :  Last Revised: Thu Jan 12th 2017
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.