With a rise in business insolvencies and more active debt recovery by the ATO and other creditors, many directors are now facing claims under personal guarantees they signed years ago.
For small and medium businesses, guarantees are often signed quickly to secure finance, leases or supply arrangements. Problems usually appear when the business struggles and creditors start looking to the guarantors.
Where Personal Guarantees Commonly Appear
Directors and business owners often give guarantees in:
- Commercial leases and fit-out agreements
- Bank loans and overdrafts
- Equipment finance and vehicle leases
- Trade credit accounts with key suppliers
- Payment arrangements for tax or utilities
Guarantees may be stand-alone documents or clauses buried in broader contracts or credit applications.
Key Risks For Directors
Once a guarantee is called on, the creditor can usually:
- Sue the guarantor personally, even if the company is in administration or liquidation
- Register security over the guarantor’s property if a mortgage or charge was given
- Demand payment of the full amount, not just instalments
Some guarantees are “all monies” guarantees, which may cover more than the director expected.
Common Problems We See
Typical issues in guarantee disputes include:
- Directors not realising they signed a guarantee at all
- Guarantees signed by email without proper explanation
- Changes to credit limits or lease terms without revisiting the guarantee
- Multiple guarantors, with arguments about contribution between them
- Poorly drafted guarantees that do not match the underlying contract
While courts generally enforce clear guarantees, there may be defences in cases of misrepresentation, unfair pressure, or where the guarantee has been varied or discharged.
What To Do If A Guarantee Is Called
If you receive a demand:
- Do not ignore it. Time limits for responding or defending a claim can be short
- Gather all documents – guarantee, loan or lease, variations, emails and statements
- Check whether the demand correctly states the debt and interest
- Consider whether there has been any change in the underlying agreement
- Seek legal advice before negotiating or signing any further documents
Early advice can help identify whether the claim is enforceable and, if so, how best to negotiate a realistic outcome.
Managing Risk Before There Is A Problem
Directors can reduce risk by:
- Knowing exactly which guarantees they have signed
- Keeping a simple register of guarantees and securities
- Reviewing guarantees when major contracts are renewed or refinanced
- Considering whether some arrangements can proceed without personal security
- Obtaining advice before giving new guarantees, particularly where personal property is involved
How Scherini Lawyers Can Help
We advise directors and business owners across Melbourne on guarantee disputes and broader insolvency risk. Our work includes reviewing guarantee exposure, defending claims and negotiating resolutions that balance commercial and personal considerations.
If you have received a demand under a personal guarantee, or want to understand your exposure, call 03 9961 3149 or email info@scherinilawyers.com.au.
This article provides general information only and should not be treated as legal advice. Please seek professional advice before acting.
