Risks of Signing a Personal Guarantee

Risks of Signing a Personal Guarantee

By: Ana Fernando, Account Executive at Debt Recoveries Australia

Previously, Adam Stewart spoke about personal guarantees on his previous article and how they can help you in debt collection. I would like to discuss about the risks of signing a personal guarantee and what to look out for.

While it is a good thing for recovery and debt collection, it is a big responsibility for whomever is signing the agreement.  Personal guarantee holds a certain party liable for the outstanding debt, even if the company or entity they are signing on behalf of has become insolvent. Remember that the only time you can be released from a personal guarantee, is when you have obtained the consent of the creditor or lender and potentially also the debtor, a person or a company, depending on the agreement and surrounding obligations.

We will talk about the real risks as a guarantor, will face upon signing a personal guarantee.

  1. Be aware that many guarantees these days contain clauses which allow the credit providers to take charge over real properties as a guarantor, might own, including lodging a caveat.
  2. Be aware that the creditor can seek judgement at Court against you, as the guarantor, personally. If judgement is obtained, the creditor will be entitled to use standard enforcement methods. The guarantee is not tied to a specific asset, so any assets you hold are potentially available to the court for seizure and sale.
  3. Be aware also that ceasing to have a relationship with the company does not automatically terminate a guarantee, even if it was a personal guarantee signed as a Director, and you have resigned from that role, or the company has gone into external administration such as liquidation.
  4. Be aware that this is a continuing guarantee which is not limited in time. Meaning that you can be held liable for any past, present and future obligations owed by the company.  The debt may be paid by the company at a given date, but you will still be liable for any subsequent indebtedness by the company.

Things to remember

  • Obtain legal advice before signing.
  • Make sure you understand the agreement before signing it. Know how far it reaches and how can it impact you or your business.
  • Keep a copy of the agreement for your own records.

Be wary of signing any guarantees for family members, or for businesses which you do not have any involvement on a day to day running, because at the end of the day the risk lies with you.

You may also refer to our previous articles:

Personal Guarantees: Risks and Rewards

The Dangers of Director’s Guarantees

 

 

Debt Recoveries Australia is the expert at recovering your outstanding debt without the drama. For more information, email at us email@debtrecoveries.com.au or call 1300 799 511. Talk to us about your debt collection concerns via Skype at debtrecoveries.

 

 

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