Last reviewed and updated: May 2026
For more information about how Boss Lawyers can assist with insolvency and restructuring matters, visit our Insolvency Lawyers Brisbane page or call Mark Harley on 1300 267 711.
What Is a Personal Guarantee?
A personal guarantee is a contractual promise to make yourself personally liable for the debt or obligations of another person or entity — most commonly, your company. If you personally guarantee the debts of your business, the lender or creditor can pursue your personal assets if the business cannot pay.
Personal guarantees are ubiquitous in commercial lending, commercial leases, supplier agreements, and trade credit facilities. Most small and medium business owners sign them without fully understanding what they are agreeing to — often under time pressure, when securing finance or winning a contract.
Why You Might Sign a Personal Guarantee
Most commercial lenders and landlords will require a personal guarantee when dealing with a company or trust — particularly where the entity is new, has limited assets, or has no trading history. Because the business entity itself may have limited ability to pay if things go wrong, the lender wants the personal guarantee as a backstop: if the company cannot pay, the guarantor will.
In practice, directors of small and medium-sized businesses often have no choice — without providing a personal guarantee, the company cannot access the finance, premises, or credit it needs to operate. The key is to understand the full scope of what you are guaranteeing before you sign.
How Personal Guarantee Mechanics Work
A personal guarantee creates a direct obligation on the guarantor. The core mechanics are:
- Primary obligation or secondary obligation? Most modern guarantees are structured as principal obligor guarantees — meaning the creditor can pursue the guarantor directly without first exhausting remedies against the primary debtor. This is more onerous than a traditional guarantee where the creditor must first demand payment from the primary debtor.
- All monies clause: Many guarantees contain an “all monies” clause, meaning the guarantor is liable for all amounts the principal debtor owes — not just a specific loan or facility. This can catch guarantors off guard when new facilities are added.
- Continuing guarantee: A guarantee may continue after a director leaves a company unless properly discharged. Departure from the board does not automatically release you from a guarantee you signed while a director.
- Indemnity clause: Most guarantees also contain an indemnity — a wider obligation that survives even if the underlying debt or guarantee is unenforceable for technical reasons.
How Does Bankruptcy Affect the Guarantor’s Liability?
If you, as the guarantor, become bankrupt, your liability under the personal guarantee is a provable debt in your bankruptcy. The creditor who holds the guarantee can lodge a proof of debt in your bankruptcy estate for the amount owed under the guarantee.
Upon discharge from bankruptcy (generally after 3 years and one day), you are released from the guaranteed debt, just as you are released from other provable debts. This means that, post-discharge, the creditor cannot pursue you personally for the balance.
However, there is an important caveat: the guaranteed debt is not released if it was obtained by fraud. If you provided false information to obtain the facility — for example, fraudulent financial statements — the underlying debt (and your guarantee obligation) may survive your bankruptcy.
Does Bankruptcy of the Guarantor Release the Guaranteed Debt?
Your personal bankruptcy does not release the primary debtor’s obligation. If a company borrowed money and you guaranteed it, the company’s debt remains intact regardless of what happens to you personally. The creditor can still pursue the company for payment even while your personal liability is being dealt with through your bankruptcy.
Similarly, if the primary debtor (the company) goes into liquidation, that does not affect your personal liability as guarantor. The creditor can pursue you directly for the full amount, without having to wait for the liquidation to conclude.
Creditor’s Right to Pursue Co-Guarantors
Where there are multiple guarantors — for example, two co-directors both guarantee a company’s loan — the creditor can pursue any one or all guarantors for the full amount of the debt. Creditors do not have to pursue guarantors proportionally. This means if your co-director goes bankrupt and is effectively judgment-proof, you can be pursued for 100% of the guaranteed amount.
The Guarantor’s Right of Contribution
If you pay more than your proportionate share of a jointly guaranteed debt, you have a right of contribution against your co-guarantors. This is an independent right at law — the co-guarantors owe you a contribution equal to their share of the debt you paid on their behalf.
In practice, however, the right of contribution is often difficult to enforce. If your co-guarantor is also insolvent or bankrupt, you will struggle to recover. This is why it is important to consider your co-guarantors’ financial position when evaluating your exposure under a joint guarantee.
Director Guarantees on Company Debts
Directors of Australian companies routinely sign personal guarantees for their company’s debts. The practical consequences are significant:
- If the company is placed into voluntary administration, receivership, or liquidation, the guarantee is immediately enforceable against the director personally.
- Unlike the company’s debts, which are dealt with through the insolvency process, the director’s personal liability under the guarantee is a personal debt that must be resolved personally — whether by payment, negotiation, or (if necessary) bankruptcy.
- A director who is also a guarantor faces a dual exposure: potential insolvent trading liability under the Corporations Act, and personal guarantee liability under the guarantee deed. Both can result in personal judgments.
What Happens When the Primary Debtor Is Also Bankrupt (or in Liquidation)?
Where both the primary debtor and the guarantor are insolvent, the creditor’s options are limited. They can:
- Prove in both estates (the company’s liquidation and the guarantor’s bankruptcy) — but cannot receive more than 100 cents in the dollar in total across both estates
- Pursue any co-guarantors who remain solvent
- Enforce any security held over assets (real property, PPSR-registered personal property)
The creditor is not, however, entitled to a “double dip” — they cannot receive dividends from both estates that together exceed the total amount of the debt.
Practical Implications for Lenders and Creditors
If you are a lender or trade creditor holding personal guarantees, consider the following when a guarantor goes bankrupt:
- Lodge a proof of debt promptly in the guarantor’s bankruptcy — trustees have deadlines, and late lodgement may affect your dividend rights
- Simultaneously pursue any co-guarantors and enforce any security you hold
- Review the guarantee terms carefully — if it contains an all-monies clause, ensure you are claiming all amounts owed, not just the specific facility
- Consider whether the guarantor may have transferred assets prior to bankruptcy — trustees have clawback powers, but so do creditors with security
Frequently Asked Questions
If I go bankrupt, does my personal guarantee disappear?
Not immediately — it becomes a provable debt in your bankruptcy. When you are discharged (generally after 3 years), the personal liability under the guarantee is released for most debts. However, the discharge does not release the primary debtor’s obligation, and it does not affect your co-guarantors’ liability. During the bankruptcy, the creditor can still participate in your estate by lodging a proof of debt.
Can a creditor still pursue me under a guarantee if the company I directed has been liquidated?
Yes. Company liquidation does not affect your personal liability under a guarantee you signed. The creditor can pursue you for the full amount of the guaranteed debt even if the company is in liquidation or has been deregistered. This is a common and painful reality for former directors — the company is gone, but the guarantee lives on.
How do I get out of a personal guarantee?
Legitimate exits include: paying the guaranteed debt in full, negotiating a release with the creditor (often at a discount), or being discharged through bankruptcy. Attempting to transfer assets to defeat the guarantee will likely be set aside by a court or trustee. There is no shortcut — but negotiation is often possible, particularly when the creditor’s alternative is a long and uncertain recovery.
Is a verbal guarantee enforceable?
In Queensland, a guarantee is generally unenforceable unless it is in writing and signed by the guarantor (or their authorised agent) under the Property Law Act 1974 (Qld). However, there are exceptions — including where the guarantor has acted in reliance on the verbal guarantee in a way that makes it unconscionable to refuse enforcement (promissory estoppel). Do not assume a verbal guarantee is unenforceable without legal advice.
How Boss Lawyers Can Help
Personal guarantee disputes are high-stakes — both for creditors seeking to enforce and for guarantors trying to minimise exposure. We regularly act for both sides: helping creditors enforce guarantees against directors and co-guarantors, and advising guarantors on their options, including negotiation, annulment of judgments, and the bankruptcy process. Early advice significantly improves outcomes.
Contact Mark Harley at Boss Lawyers on 1300 267 711 or visit bosslawyers.com.au.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
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For expert legal advice on commercial disputes in Brisbane and Queensland, speak with our commercial litigation lawyers Brisbane. Call 1300 267 711 or contact us online.
