DIRECTOR LIABILITY
What is a personal guarantee? and how does it work? Plain-English answers for Australian directors
A plain-English guide to understanding your exposure before it becomes a problem.
Written by Jason, founder of Liquidation Help Australia — someone who's been through business restructuring himself.
The short answer: What is a personal guarantee and how does it work?
A personal guarantee is a legally binding promise that you, as an individual, will personally repay a specific business debt if the company can't. Signing one effectively sets aside the limited liability protection your company structure normally gives you — for that particular debt, the creditor can come after you directly, personally, without needing to exhaust their options against the company first. If you're facing business difficulty right now and you're not sure exactly what you've signed over the years, that uncertainty is genuinely one of the most common and most stressful parts of this whole process. This guide walks through what personal guarantees actually mean, where they typically show up, and what actually happens if one is called on.
Where personal guarantees usually show up.
Most business owners don't sign just one — they accumulate several over the life of a business, often without fully registering each one as a separate, serious commitment: Business loans and finance — banks and lenders very commonly require a director's guarantee, especially for unsecured lending or when the company itself doesn't have significant assets to offer as security. Commercial leases — landlords routinely require a personal guarantee to cover rent or damage if the company stops paying. Trade credit accounts — suppliers providing stock or services on credit often ask for a director's guarantee as a condition of extending that credit. Equipment and vehicle finance — leases or asset finance arrangements frequently require personal backing.
The honest truth is that virtually every business owner will sign at least some form of personal guarantee over the life of their business, and it's important to understand what that actually means for your personal exposure if things go wrong.
Frequently asked questions.
If multiple directors guaranteed the same loan, are we each liable for the whole amount, or just our share?
Generally, each guarantor can be pursued for the full amount, not a divided share — lenders often allow multiple guarantors specifically to spread risk on their side, but that doesn't mean your personal liability is proportionally reduced.
Can a guarantee affect jointly owned property, like a house I own with my partner?
In most cases, a lender holding a personal guarantee can pursue the guarantor's own share of jointly owned property. The co-owner's separate share isn't directly at risk, but your own equity is.
Is superannuation protected from a personal guarantee claim?
Superannuation held in a regulated fund does carry some statutory protection under Australian law, though the extent depends on the specific fund structure and the nature of the debt. This is exactly the kind of detail worth confirming with someone who can look at your actual super arrangement. For more detail, see the Australian Financial Security Authority's guidance on superannuation and bankruptcy.
Can I negotiate the terms of a personal guarantee before signing one in future?
Yes — this is worth knowing for any future finance you take out. You can potentially negotiate a capped (limited) guarantee instead of an unlimited one, or in some cases a "last resort" clause requiring the lender to pursue the company's own security first.
What if I signed a personal guarantee and don't fully remember what it covers?
This is more common than people think, and it's worth getting the actual document reviewed rather than guessing. General information only — every guarantee is worded differently. A free, confidential consultation can help you work out what it actually means for you.
Can creditors take money from my personal bank account?
Only in specific circumstances — usually where a personal guarantee or personal liability applies, not automatically from a company debt alone. General information, not a determination on your situation. Ask us directly, free and confidential.
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