The Risk of Personal Guarantee Debt


Article by Mark Davidson

What is a personal guarantee?

At Pearce & Heers, we’re often referred clients who have personal guarantee debt. But, how does someone enter into a personal guarantee and what are the consequences?

A personal guarantee is a promise made by the person giving the guarantee that they will meet the obligations of a person or company pursuant to an agreement between that person/company and another party. 

Personal guarantees are very common in commercial supply or credit contracts. If you are the director of a company, it’s very likely that you have signed a few personal guarantees for your business, whether you know it or not. 


Who might ask you to sign a personal guarantee?

If you trade through a company, you may sign a personal guarantee when you:

  • Sign a lease or rental agreement;
  • Apply for trade credit from a supplier;
  • Sign a loan agreement with a bank or other lender; or
  • Sign a lease or finance agreement for a motor vehicle or other equipment.

Often a supplier or lender will not do business with you unless you sign their credit agreement. Within the terms of these agreements there is usually a personal promise or guarantee that you will meet the debt if your company does not pay it. A suppler or lender may not explicitly advise you that you are signing a personal guarantee but it is often written into the standard wording of their agreement.

The best advice is to read and understand every document before signing it. Also, seek competent legal advice before signing any contracts or credit applications that require a personal guarantee.


What happens if you are liable under a personal guarantee?

Once you have signed a personal guarantee a creditor can pursue you for the debt if your company defaults. 

Some personal guarantees also go one step further and grant the creditor a charge over your property such as real estate. This is like your supplier or lender having a mortgage over your property and they can exercise that security in various ways including lodging a caveat or making an application to Court to obtain possession of your property.

Generally, there is no time limit on how long a personal guarantee runs for. So a guarantee you signed 10 years ago can still be valid, even if you have resigned as director and have had nothing to do with the business for some time. If you do resign as a director of a company, it’s your responsibility to inform the supplier or lender that you have done so and cease to honour the guarantee. This may only get you off the hook for future debts and not out of debts which have already been incurred in this way.


What are your options?

If a bank, landlord or supplier is pursuing you for a personal guarantee, your options to resolve the matter are: 

Over the years we have helped numerous people negotiate payment arrangements or settlements for personal guarantee debts. But you have to be proactive in taking steps to resolve your situation.


Where can you get advice and assistance?

If you are being pursued by a creditor because you signed a personal guarantee and would like to better understand the potential consequences and the options available, please contact Pearce & Heers at our Brisbane or Gold Coast offices for an for an initial, obligation-free consultation.



We’re happy to answer any questions you may have, so please don’t hesitate to call us and schedule a consultation.



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127 Creek Street
Brisbane Qld 4000


Phone: 07 3221 0055
Fax: 07 3221 8885

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GPO Box 691
Brisbane Qld 4001



Level 15, Corporate Centre One
2 Corporate Court
Bundall Qld 4217


Phone: 07 5630 1179
Fax: 07 3221 8885