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Signing a director’s guarantee is a common request if you are a director of a company entering an agreement. It’s a serious undertaking, but many directors don’t realise that their obligation under a guarantee can last forever. This article will explain director’s guarantees and whether there are ways of getting out of one.

What is a Director’s Guarantee?

A director’s guarantee is a personal guarantee, often signed by directors when a company is entering an agreement, such as a credit contract, lease or finance loan. If you sign a director’s guarantee, you will be liable for any debts that the company can’t pay. Before signing a director’s guarantee, it’s important you are aware of all your obligations under the guarantee and, in particular, for how long those obligations apply.

How Long Does a Director’s Guarantee Last?

In short, a director’s guarantee can last forever. Directors are often shocked when approached by a creditor and discover they are liable for a company’s debts owed under an agreement. Often this is many years after signing the original guarantee or when the director is no longer even involved with that company. In other words, under a director’s guarantee, you can be liable for debts caused by other people running the company long after you have left.

There are many different types of director’s guarantees. Some contain terms that limit your liability to a particular time or a specific transaction. However, it is most common for director’s guarantees to be ongoing or continuing. This means the obligation lasts forever and will apply even if:

  • you have resigned as director from that company;
  • the company has stopped trading; or
  • the company has been deregistered or wound up.

Can I Get Out of a Director’s Guarantee?

There are some limited options to get out of a director’s guarantee. One way is to ask the creditor or other parties to the agreement to release you from that guarantee. If, for example, you decide to resign as a director and leave the company, you could contact each creditor and request that they release you from the guarantee. You may also consider requesting that incoming directors sign a director’s guarantee in your place. There is no certainty they will agree, but if the company is otherwise performing under the agreement and paying its debts, the creditor may consider it.

You may be able to have the guarantee set aside if you believe it was obtained under certain circumstances that show there was an element of:

If you can show this, the guarantee may be set aside as being void or unenforceable. Also, be aware that a director’s guarantee cannot be enforced during the time a company is in administration unless the court grants approval.

What If I Can’t Pay the Debt Owed Under the Director’s Guarantee?

If a creditor pursues you under a director’s guarantee for debts owed by the company and you can’t afford to pay, the creditor may obtain a judgment against you. If they succeed, they can enforce this judgment with certain measures such as:

  • a garnishee on your wages. This means that the creditor can take a portion of your wages from your employer to pay back the debt;
  • a property warrant; or
  • bankruptcy.


As soon as you are aware of the debt you should contact the:

  • other directors who may also be liable under director’s guarantees for the same debt. You may be able to reach an agreement to share the debt;
  • creditor and attempt to negotiate a payment arrangement that you could afford, such as payment by instalments or payment of an agreed lump sum at a future date.

Is There Any Way to Avoid a Director’s Guarantee?

Sometimes, a creditor will not enter an agreement with a company unless the director agrees to sign a director’s guarantee. You may have no choice but to sign the guarantee if the company requires that loan agreement or credit application to do business. However, in some cases, there are alternatives that parties may consider and options that can limit the impact of the guarantee. For example, you may be able to negotiate the terms of the director’s guarantee by:

  • offering a bank guarantee instead of ongoing liability;
  • requesting a limit on the amount for which you are liable;
  • requesting a limit on how long the guarantee lasts; or
  • limiting the guarantee to your time as director.

Key Takeaways

Before you sign a director’s guarantee, make sure you understand all of your obligations under the guarantee. It is best to get legal advice to ensure you are fully aware of how the guarantee will operate, the risks and most importantly, how long it may apply. If you have any questions about director’s guarantees or need assistance with reviewing a director’s guarantee, you can contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.


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