Operating a business through a company generally keeps business debts separate from your personal finances. However, that protection can change if you sign a personal guarantee.
For Gold Coast business owners, personal guarantees are common in commercial leases, business finance arrangements and supplier contracts. While they can help businesses secure premises, funding or credit, they can also expose directors to substantial personal liability.
That’s why it’s important you understand what you’re agreeing to before signing.
How does a personal guarantee affect your liability?
A company is a separate legal entity, meaning its debts generally belong to the company rather than its directors. A personal guarantee creates a separate contractual obligation. By signing one, you agree to become personally responsible for certain company obligations if the business fails to meet them.
For example, if a company defaults on a commercial lease, the landlord may be able to pursue the director who guaranteed the lease for unpaid rent and other liabilities.
Depending on the agreement and enforcement proceedings, the director’s savings, investments and even their home could be at risk.
When might you be asked to provide a personal guarantee?
Personal guarantees are commonly requested when creditors want additional protection against a company’s failure to meet its obligations. Three common situations include:
Commercial leases
Landlords may require directors to personally guarantee a company’s lease obligations, particularly where the tenant has a limited trading history.
Depending on the wording, the guarantee may cover unpaid rent, outgoings, make-good costs and damages arising from breaches of the lease.
These obligations can be substantial, particularly under long-term leases. A Gold Coast commercial leasing lawyercan help directors understand the extent of their exposure.
Business finance
Lenders may require guarantees when financing business operations, vehicles, equipment or commercial property. If the company defaults, the lender may recover the outstanding amount from the guarantor, often with interest and enforcement costs.
Supplier contracts
Suppliers offering goods or services on credit may also require personal guarantees, particularly for newer businesses. A guarantee may cover unpaid invoices and, depending on its wording, future purchases made under an ongoing credit arrangement.
When is a personal guarantee legally enforceable?
Under section 69 of the Property Law Act 2023 (Qld), a guarantee generally must be in writing, or its terms recorded in writing, and signed by the person against whom it is to be enforced. For the purposes of this section, a guarantee also includes an indemnity, so the same writing and signature requirements apply.
However, meeting these requirements does not necessarily mean every guarantee is enforceable. Depending on the circumstances, a guarantee may be challenged on grounds such as misleading conduct, undue influence, duress or unconscionable conduct as well as technical grounds, including whether the underlying obligation has changed without.
What liabilities can a personal guarantee cover?
The wording of the guarantee determines the extent of your obligations. Important provisions to look for include:
- Unlimited liability: The guarantee may have no financial cap, leaving you exposed to the full amount owed.
- All-monies clauses: These may extend liability beyond the original transaction to other debts owed to the same creditor.
- Continuing guarantees: These may cover future debts, additional credit or ongoing contractual obligations.
- Joint and several liability: Where multiple directors guarantee a debt, the creditor may be able to recover the full amount from any one of them.
- Interest and recovery costs: The guarantee may cover default interest, legal fees and other enforcement expenses.
- Charging clauses: These may create a security interest over property you own. Where a clause creates a sufficient interest in land, the creditor may be able to lodge a caveat over that property. A Gold Coast caveat lawyer can explain the implications.
Some guarantees also include an indemnity, which can make you directly responsible for certain losses suffered by the creditor – even in some situations where the company’s own obligation can no longer be enforced. A commercial lawyer can review these provisions and explain their potential consequences.
Does a guarantee continue after you leave the business?
Resigning as a director or selling your shares does not automatically release you from a personal guarantee.
This is particularly important where a business sale involves a commercial lease.
Under section 50A of the Retail Shop Leases Act 1994 (Qld), an outgoing tenant and its guarantors may be released from liability for the incoming tenant’s subsequent defaults, provided the outgoing tenant has complied with the relevant disclosure requirements and supplied a disclosure statement that is not materially defective. This release does not extend to liabilities arising from earlier defaults.
For other commercial leases entered into from 1 August 2025, section 144 of the Property Law Act 2023 provides a narrower protection. Once the lease has been assigned a second time, the original tenant and its guarantors are released from liability for breaches by the second assignee. They may, however, remain liable for breaches by the first assignee.
For finance and supplier agreements, release depends on the guarantee’s terms and what you negotiate.
How long can a creditor enforce a personal guarantee?
Creditors do not necessarily have to pursue guarantors immediately after a company defaults. However, legal time limits apply. Under section 10 of the Limitation of Actions Act 1974 (Qld), claims on a simple contract generally have a six-year limitation period. The same period generally applies to deeds entered into on or after 1 August 2025, while deeds entered into before that date generally remain subject to the previous 12-year limitation period.
Time generally runs from when the cause of action arises, not when the guarantee was signed. Depending on the wording, that may be when payment falls due or a demand is made.
What should you check before signing?
Before providing a personal guarantee, consider:
- Is liability capped? Can you negotiate a maximum amount?
- Does it cover future debts? Could additional borrowing, purchases or lease renewals increase your exposure?
- Can the creditor pursue you directly? Or must they first attempt to recover the debt from the company?
- How can the guarantee end? Will you need the creditor’s written release?
- Are personal assets offered as security? Could your property be at risk if the company defaults?
Guarantees may also remain enforceable against your estate after your death, so raise them with a wills and estates lawyer when you review your estate plan. If the company is already in financial difficulty, an insolvency lawyer can explain how administration or liquidation may affect your personal obligations.
Get legal advice before signing a personal guarantee
A personal guarantee can create financial obligations that continue long after the original agreement is signed. QBM Lawyers can review the terms, explain your potential liability and help negotiate conditions before you commit. If a creditor is already seeking payment, our debt recovery lawyers can advise on your rights and options.
Whether you’re considering signing a guarantee or facing a claim under one, contact QBM Lawyers to speak with a Gold Coast business lawyer about your circumstances.
Frequently Asked Questions
Potentially. If the company defaults and the guarantee is enforceable, the creditor can issue a demand. If it isn’t paid, the creditor can sue you in a Queensland court, and a judgment can then be enforced against personal assets such as bank accounts or property. If the guarantee includes a charging clause that creates a sufficient interest in land, the creditor may also be able to lodge a caveat over land you own.
Generally, no. Resigning as a director does not automatically end a personal guarantee. Depending on its terms, you may need the creditor’s written release, although some guarantees allow you to end liability for future debts by giving notice. You will generally remain liable for amounts already covered by the guarantee.
Often, yes, ideally before you sign. Common requests include a cap tied to a dollar amount or a number of months’ rent, a time limit or limiting the guarantee to a specific contract rather than all monies owing. Some creditors will accept a bank guarantee or larger security deposit instead. Make sure any agreed changes are recorded in writing.
Generally, a creditor has six years from when the cause of action arises to commence proceedings under a simple contract in Queensland. The period may begin when payment falls due or a demand is made, depending on the guarantee’s terms, rather than when you signed it. Guarantees executed as deeds before 1 August 2025 may still be subject to a 12-year period, so older guarantees can remain enforceable for longer than many directors expect.
