Personal Guarantee Review: A Director’s Guide for Australian SMEs

You set up the company specifically to keep business risk separate from personal risk. Then a landlord, supplier, or lender slides a personal guarantee across the table. Sign it and that limited-liability shield is gone — the family home, your investments, your superannuation (in some cases) all sit behind the company’s debt.

Personal guarantees are now standard in Australian commercial dealings. Refusing outright often kills the deal. The right move is to understand what you’re signing and negotiate down the worst features.

The clauses that matter most

• Quantum cap. Is the guarantee for a specific amount (e.g. $100,000) or “all monies” (any amount the company ever owes the counterparty)? An “all-monies” guarantee is dangerous — it expands as the company takes on more debt with the same counterparty.
• Time limit. Does the guarantee continue indefinitely or terminate on a specific event (lease end, loan payout, contract termination)? Unbounded guarantees can survive your departure from the company.
• Joint and several liability. If multiple directors sign, can the counterparty pursue any one of you for 100% of the debt? Yes, by default. Push for several-only liability where possible.
• Demand triggers. Can the counterparty demand from you immediately on company default, or must they pursue the company first? “Independent obligation” guarantees are demanded immediately.
• Set-off and indemnity provisions. Watch for clauses where you indemnify the counterparty against losses including their legal costs of pursuing you.
• Continuing security. Does the guarantee discharge when the original debt is paid, or roll forward to cover any new debt automatically?
• Subrogation waiver. A subrogation waiver prevents you from pursuing the company for repayment after you’ve paid the guarantee. Combined with insolvency, this means you’ve paid in full and can’t recover.
• Spousal consent. Some guarantees require your spouse’s consent — particularly where joint property is involved. The Garcia v National Australia Bank decision created specific protections for spouse-guarantors that lenders try to draft around.

Common red flags

• “All present and future debts” — uncapped, indefinite exposure
• No release on company sale — you remain liable even after exiting the company
• “On demand” payment with no requirement to first pursue the company
• Acknowledgement that you’ve received independent legal advice when you haven’t — this defeats unconscionable conduct claims
• Joint and several with no contribution rights between guarantors
• Charges over personal property registered on the PPSR alongside the guarantee

What you can usually negotiate

Counter-parties resist removing guarantees but will often accept: a quantum cap, a time-limited guarantee (e.g. lease term only), several-only liability between multiple directors, release on company sale subject to incoming-director replacement guarantee, exclusion of the family home from any subsequent enforcement.

What Claim Done’s contract review delivers

Upload the guarantee document and the underlying contract it relates to. The review returns an A4 PDF flagging quantum, time limits, demand mechanics, subrogation waivers, and spousal consent issues. The report sets out good, fair and watch points, key obligations, fees and penalties found, and questions to raise with the other side. Flat $49 fee, 24/7.

What happens when the company defaults

Most directors signing personal guarantees believe the day will never come. When the company defaults, the counterparty’s collection process moves fast — typically: demand on the company (7-14 days), demand on the personal guarantor (14 days), Statutory Demand under the Corporations Act for the company (21 days), and then bankruptcy proceedings against the guarantor if the demand isn’t satisfied. The personal-asset risk crystallises quickly and there’s little time to refinance, mortgage personal property, or negotiate. The pre-signing review isn’t paranoia — it’s recognition that the worst-case scenario, while unlikely, develops faster than most directors expect.