When you sign a director’s personal guarantee, you’re doing more than backing your business, you’re putting your personal assets on the line. Many Queensland directors sign these guarantees to secure loans, leases, or supplier credit without fully realising the risks.
If your company can’t pay its debts, you may be personally liable. Creditors can pursue you directly, threaten your home, or force the sale of personal assets. Understanding how personal guarantees work and how to respond if a creditor calls one in — is essential to protecting yourself and your family.
What Is a Director’s Personal Guarantee?
A personal guarantee is a legal agreement where a director personally promises to repay company debts if the business can’t. It removes the protection of “limited liability” and exposes your personal property, savings, and income.
Common situations where personal guarantees are required include:
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Business loans and finance facilities
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Commercial property leases
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Trade credit or supplier accounts
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Equipment finance and vehicle leasing
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Franchise or business purchase agreements
Types of Personal Guarantees
Not all guarantees are the same. Common types include:
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Unlimited guarantees – You’re liable for all company debts to that creditor.
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Limited guarantees – Your liability is capped at an agreed amount.
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Continuing guarantees – Cover both existing and future debts.
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Specific transaction guarantees – Apply to a single contract or facility.
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Joint and several guarantees – Multiple directors each remain liable for the full amount.
When Personal Guarantee Liability Is Triggered
Personal guarantee enforcement usually occurs when:
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The company becomes insolvent or goes into liquidation
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There’s a default on loan or lease payments
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A creditor issues a formal demand under the guarantee
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A breach of loan covenants occurs (such as failing to meet financial ratios)
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The company winds up voluntarily but leaves outstanding debts
Once triggered, creditors can move quickly — demanding payment, investigating assets, and taking legal action.
Your Legal Rights and Possible Defences
Even if you’ve signed a guarantee, you may still have legal options to challenge it.
Procedural defences:
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The document was not properly executed
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You did not receive independent legal advice
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The terms were misrepresented or unclear
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Required notices were not provided before enforcement
Substantive defences:
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The lender acted unconscionably or exerted undue influence
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There were material changes to the loan without your consent
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The creditor failed to mitigate losses
A commercial lawyer can assess whether any of these defences apply before creditors begin enforcement proceedings.
The Enforcement Process
Creditors generally follow these steps when enforcing a personal guarantee:
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Formal demand – You receive written notice requiring payment within a set period.
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Asset search – The creditor investigates your property, bank accounts, and other assets.
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Negotiation – Many creditors prefer settlement to lengthy litigation.
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Court action – If unresolved, the creditor may obtain a judgment against you personally.
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Enforcement – With a judgment, creditors can seize assets, garnish wages, or force the sale of property.
Protecting Your Assets Before Enforcement
Legitimate, pre-emptive asset protection strategies include:
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Ensuring assets are held in the right ownership structure
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Maintaining separation between personal and business assets
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Using discretionary trusts for investments
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Understanding family law protections for jointly owned property
Avoid illegal actions such as hiding or transferring assets after enforcement has begun. These may amount to bankruptcy offences and won’t prevent recovery.
Negotiating with Creditors
Direct negotiation can often reduce the impact of a personal guarantee.
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Payment arrangements: Extended terms or staged repayments
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Partial settlements: Offering a reduced lump-sum payment
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Alternative security: Offering company assets instead of personal ones
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Restructuring options: Working with the creditor to stabilise the business
An experienced commercial lawyer can handle these discussions and protect your negotiation position.
Personal Bankruptcy as a Last Resort
If debts exceed your ability to pay, bankruptcy may offer protection and relief:
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Stops most enforcement actions immediately (“automatic stay”)
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Preserves basic household goods and tools of trade
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Usually lasts three years, after which most debts are discharged
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Has long-term impacts on credit, travel, and business activity
Bankruptcy should be a last resort after exploring all other options.
Impact on Family and Joint Assets
Personal guarantee enforcement can have major consequences for families:
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The family home may be exposed if jointly owned or mortgaged
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A spouse’s separate assets are generally protected unless jointly held
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Superannuation is usually protected from creditors
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Joint bank accounts may be frozen during enforcement
It’s critical to seek advice early to understand what assets are at risk and how to protect them.
Commercial Lease Guarantees in Queensland
One of the most common personal guarantees we see involves commercial property leases.
Landlords almost always require directors to personally guarantee the tenant company’s obligations, rent, outgoings, maintenance, and even make-good costs.
This means that if your business can’t pay rent or closes its doors, the landlord can pursue you personally for the remaining lease term or arrears, even if you’ve walked away from the premises.
Important points to understand about commercial lease guarantees:
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The guarantee often remains in force even after lease extensions or assignments, unless the landlord agrees in writing to release you.
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You may be liable not just for unpaid rent, but also for legal costs, interest, and damages until a new tenant takes over.
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If there are multiple directors, the guarantee is usually joint and several, meaning each director is liable for the full amount.
➡️ Read our related article:Commercial Lease Risk Assessment: Identifying Red Flags & Legal Tips Before You Sign
How to Prevent Future Guarantee Risks
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Negotiate limits: Never sign an unlimited guarantee — set a dollar cap.
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Seek legal advice: Always obtain independent advice before signing.
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Add sunset clauses: Ensure guarantees expire or renew under agreed conditions.
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Plan releases: Include provisions for release when obligations are met.
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Offer alternatives: Consider other forms of security instead of personal guarantees.
When to Seek Urgent Legal Advice
You should contact a lawyer immediately if:
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You’ve received a demand under a personal guarantee
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Your company is facing insolvency or liquidation
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Creditors are threatening enforcement
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You need to review or renegotiate existing guarantees
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You want to protect your family assets before enforcement
Early intervention often leads to better outcomes — waiting until proceedings begin can severely limit your options.
The True Cost of Personal Guarantees
Personal guarantees might seem like a routine business requirement, but their consequences are personal and often devastating. They can:
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Jeopardise your home and savings
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Strain family relationships
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Affect business decision-making and risk tolerance
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Complicate exit or retirement plans
Understanding your exposure is critical before signing — and acting quickly can reduce loss if enforcement begins.
Professional Help for Directors Facing Guarantee Enforcement
Bennett Carroll Solicitors has extensive experience defending directors across Queensland against personal guarantee claims. Our team helps clients:
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Negotiate settlements or restructure debts
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Challenge guarantee enforceability
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Protect family and personal assets
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Plan legitimate asset protection strategies
📞 Call 1300 334 566 for immediate advice, or
💬 Email us to arrange a confidential guarantee assessment.
We provide expert legal assistance across Brisbane, Sunshine Coast, Gold Coast, and Ipswich, and can assist clients throughout Queensland by phone, email, or video conference.
Recommended Reading
- Business Partnership Disputes in Queensland
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Best Estate Planning Structures for Business Owners in Queensland
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Commercial Lease Disputes in Queensland: A Guide for Small Business Owners
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Business Owner’s Essential Legal Check: Navigating Legality with Bennett Carroll Solicitors
- ASIC – Director’s duties and personal liability
