Director’s Guarantee: What Are You Personally Liable For?

A director’s guarantee can create a significant personal financial risk, even where a company is incorporated. The key issue isn’t merely whether you are a director, but what you have personally agreed to guarantee and on what terms.

This guide walks you through how a director’s guarantee create liability and how you can protect yourself.

What is a director’s guarantee?

A director’s guarantee in Australia is an agreement under which a director personally promises to meet specified company obligations if the company does not.

There’s a crucial difference between company liability and guaranteed liability:

Type of liability	Who is liable?
Company liability	Normally sits with the company as a separate legal entity
Guaranteed liability	May become the director’s personal liability because they voluntarily signed the guarantee

A director isn’t automatically personally liable for every company debt merely because they hold office. Personal exposure arises when the director signs a guarantee or becomes personally liable under another legal rule, such as insolvent trading or an ATO director penalty notice for unpaid PAYG withholding, GST or super

Why are directors asked to sign personal guarantees?

Creditors commonly ask for directors’ personal guarantees because a company may have limited assets, a short trading history, or uncertain cash flow. As a company director, you may be asked to accept personal liability so the company can obtain the finance or credit it needs

Common situations include:

• Commercial leases
• Bank loans
• Business finance
• Supplier credit accounts
• Equipment finance
• Trade accounts
• Other substantial contractual obligations

The guarantee gives the creditor an additional recovery path if the company can’t pay.

Does limited liability protect you after you sign a guarantee?

Not from the obligation you personally guaranteed.

Incorporating a company separates the company’s debts from the director’s personal liabilities. However, a personal guarantee by a company director creates a separate contract between the director and the creditor.

By signing it, the director usually agrees to meet a company obligation from their own resources if the company defaults. This is the central distinction:

Limited liability protects you from company debts you haven’t personally assumed. It doesn’t necessarily protect you from a debt you personally guaranteed.

What exactly should you check before signing a director’s guarantee?

Before signing the guarantee, read it alongside the loan agreement, lease contract, supply agreement, or other company contract it supports. Don’t assess the signature page in isolation.

Check	What to establish
Debt covered	Is it one specific obligation or multiple debts?
Maximum liability	Is liability capped at an agreed amount or potentially unlimited?
Future debts	Does it cover later credit, advances, or facilities?
Duration	Is it for a fixed term or a continuing guarantee?
Default trigger	When can the creditor enforce it?
Multiple guarantors	Is liability joint, several, or joint and several?
Indemnity	Are you also giving a separate indemnity?
Security	Are personal assets separately being offered as security?
Release	How does the guarantee actually end?
Variations	Can the company’s obligations change without fresh consent?

These questions determine the practical scope of your personal exposure. A document described as a “director’s guarantee” may contain obligations that go well beyond a single debt or a stated loan amount.

What should you check about the underlying company agreement?

Don’t simply review the guarantee in isolation. You need to understand the company obligation you are agreeing to guarantee.

Review the underlying loan, lease, supply agreement, or finance agreement for:

• The loan, lease, or credit amount
• Repayment obligations
• Default events
• Interest and default interest
• Renewal terms
• Variation rights
• Credit increases
• Termination rights
• Indemnities
• Security
• Fees and enforcement costs

The underlying agreement shapes the practical risk under the guarantee. A broad guarantee attached to a contract with broad default, variation, or cost provisions may create substantially more exposure than expected.

Can you negotiate a director’s guarantee before signing?

Yes. Guarantee terms may be negotiable, depending on the creditor, the transaction, and the company’s bargaining position.

Possible negotiation points include:

• A liability cap
• Limiting the guarantee to a specific transaction
• Excluding all monies wording
• An expiry date
• Automatic release after a repayment threshold
• Release when the director exits the company
• Excluding future facilities or credit increases
• Notice before enforcement
• Removal or limitation of an indemnity
• Whether personal security is necessary
• Substitution of another guarantor

A creditor may not accept the proposed changes. However, a director’s guarantee should be treated as a commercial term to be assessed and negotiated, not as an administrative signature page.

What happens if the creditor changes the underlying contract?

This is a document review issue rather than a universal rule.

Check whether the guarantee:

• Permits variations to the company agreement.
• Continues despite extensions or renewals.
• Covers increased facilities.
• Covers replacement agreements.
• Requires guarantor consent for material changes.

This is especially important for continuing and all-monies guarantees. A guarantee may be drafted to continue even if the original company arrangement is extended, renewed, amended, or replaced.

Is the guarantee capped or unlimited?

This is one of the most important clauses to check.

A capped personal guarantee limits liability to an agreed-upon amount, subject to any additional interest, enforcement costs, or other amounts permitted by the document.

An unlimited personal guarantee may extend to the full amount owed under the relevant obligations. Depending on the drafting, that can include more than the original amount borrowed or the balance shown on a particular invoice.

Don’t assume the headline debt is your maximum exposure. Check whether the guarantee also covers:

• Interest
• Default interest
• Enforcement costs
• Legal costs
• Fees
• Future advances

Not every guarantee includes all of these items. The position depends on the wording you sign.

What is an ‘all monies’ or continuing guarantee?

An all-monies guarantee may cover more than one specific invoice, loan, or transaction. Depending on the drafting, it can extend to the amounts the company owes the creditor from time to time.

A continuing guarantee may remain in effect even after individual debts are repaid. It may apply to later obligations until it is properly terminated or the guarantor is formally released.

The practical question is: “Am I guaranteeing this transaction, or my company’s entire ongoing relationship with this creditor?”

What is the difference between a guarantee and an indemnity?

Commercial documents often contain both a guarantee and an indemnity.

Broadly:

• A guarantee supports another party’s obligation.
• An indemnity can create its own contractual payment obligation.

The technical effect of either clause depends on the wording and circumstances. You shouldn’t assume that the word “guarantee” describes every obligation in the document.

Check whether an indemnity is included as well. This is particularly important if the document contains broad payment language, references losses or costs, or uses terms such as “indemnify”, “keep indemnified” or “hold harmless”.

A guarantee with an indemnity is a strong reason to obtain legal review before signing.

Director’s guarantee vs personal security

A creditor may request a director’s guarantee and personal security separately or together. Here are the key differences:

Director’s guarantee	Personal security
Personal promise to meet specified obligations	Rights granted over particular assets or property
Can create personal debt exposure	Can allow enforcement against secured property
May exist without specific personal collateral	Usually identifies or attaches to property or security
Often requested by lenders and suppliers	May be requested in addition to a guarantee

Personal security may require a General Security Agreement, which should be reviewed carefully.

Can your personal assets be at risk under a director’s guarantee?

Even without separate security, a creditor can sue you on the guarantee, obtain judgment and enforce it against your assets, including through bankruptcy. Also check for a charging clause, which can allow the creditor to lodge a caveat over property you own

What does joint and several liability mean for multiple directors?

Where multiple guarantors are jointly and severally liable, the creditor may be able to pursue one guarantor for more than an equal share, subject to the document and applicable law.

That means two directors’ signatures don’t necessarily mean that each director is exposed to only 50% of the debt.

Before signing with another director, check whether liability is joint, several, or joint and several.

When can a creditor enforce a director’s guarantee?

The trigger depends on the wording of the guarantee and the underlying company agreement.

Potential triggers can include:

• The company failing to pay on time
• Default under the underlying agreement
• Insolvency
• Breach of another contractual obligation

Before signing, check whether:

• The creditor must first pursue the company
• Formal notice is required
• There is a cure period
• Enforcement can proceed directly against the guarantor

Don’t assume the creditor must always exhaust remedies against the company before making a claim against a guarantor. The terms of the guarantee are critical.

Does company insolvency cancel a personal guarantee?

No, not automatically. When a company is insolvent and goes into liquidation, a director remains liable for company debts that they personally guaranteed.

That said, there is an important qualification during voluntary administration. In this case, a creditor holding a personal guarantee generally can’t act under it without the court’s consent. This is a temporary restriction and doesn’t necessarily extinguish the guarantee itself.

Does resigning as a director end the guarantee?

Not automatically. A guarantee is a separate contractual obligation. Resigning changes your corporate office, but it doesn’t necessarily amend or release a contract you previously signed in your personal capacity.

The release process can be complex, particularly if the guarantee is continuing, covers future debts, or is tied to an ongoing finance facility.

When should you get a director’s guarantee reviewed?

Consider legal review when:

• Liability is unlimited.
• The guarantee includes an indemnity.
• The guarantee is continuing or all monies.
• Personal property is being offered as security.
• Several directors are signing.
• Liability is joint and several.
• The business is already financially stretched.
• The underlying agreement can be varied.
• There is no obvious expiry or release mechanism.
• You do not understand what obligations are covered.

You should understand what you’re signing and seek professional advice if you’re unsure, particularly when personal guarantees or security are involved.

Director’s guarantee checklist before signing

Before signing, make sure to:

• Identify the creditor.
• Identify the company obligation being guaranteed.
• Confirm whether liability is capped.
• Check whether it covers future debts.
• Look for “all monies” or continuing wording.
• Check for an indemnity.
• Confirm whether personal assets are separately secured.
• Check how default is defined.
• Check whether notice is required before enforcement.
• Understand joint and several liability.
• Check how variations affect the guarantee.
• Identify how the guarantee can be terminated or released.
• Check what happens if you leave the company.
• Review the underlying loan, lease, or supplier agreement as well.
• Get legal advice where the exposure is material or unclear.

Before you sign, have the guarantee and the underlying agreement reviewed together. This is particularly important if the document may expose you to ongoing liabilities beyond one clearly identified transaction.

Lawpath can ensure you’re protected. Contact one of our business lawyers today to ensure proper documentation for your company from day one.

FAQs

What is a director’s guarantee?

A director’s guarantee is a personal agreement under which a director promises to meet specified company obligations if the company does not pay or perform them.

Can a director be personally liable for company debt?

Yes. A director can become personally liable if they sign a personal guarantee, provide security over personal assets, or become liable under another legal rule.

Does a director’s guarantee override limited liability?

It can create a separate personal contractual obligation. Limited liability generally separates the company’s debts from a director’s personal finances, but it does not necessarily protect the director from a debt they personally guaranteed.

Can a director’s guarantee be unlimited?

Yes. Some guarantees may be capped at a stated amount, while others may extend to the full amount owed under the relevant obligations.

What is an all monies guarantee?

An all-monies guarantee may cover amounts the company owes to a creditor from time to time, rather than a single identified invoice, loan, or transaction. Its actual scope depends on the wording.

What is the difference between a guarantee and an indemnity?

Broadly, a guarantee supports another party’s obligation, while an indemnity can create its own contractual payment obligation. Many commercial documents contain both.

Can a creditor pursue one director for the whole debt?

Potentially. If multiple directors sign on a joint and several basis, a creditor may be able to pursue one guarantor for more than an equal share.

Can a director’s home be at risk under a personal guarantee?

Yes. If the company defaults, the creditor can pursue you personally and, if you can’t pay, enforce a judgment against your assets, which may include your home. If you have also given security over your home, or the guarantee contains a charging clause, the creditor may have direct rights over that property

Does a personal guarantee end if the company goes into liquidation?

No, not automatically. Company liquidation doesn’t resolve a director’s separate personal debts or debts they personally guaranteed.

Does resigning as a director cancel a personal guarantee?

Not automatically. Any release should be addressed directly to the creditor and properly documented.

Can you negotiate a director’s guarantee?

Yes, depending on the transaction and the creditor. Directors may seek a cap, a fixed end date, a transaction-specific scope, the exclusion of future facilities, narrower indemnity terms, or release arrangements.

How do you get released from a director’s guarantee?

Release depends on the terms of the guarantee and the creditor’s agreement. It may involve repayment, refinancing, replacement security, substitution of a guarantor, or a written release.