Are Personal Guarantees the New Walking Dead? 5 Ways to Plan for the Apocalypse

We’ve all heard it. Experts are predicting that an army of zombie businesses are quietly marching towards the Australian economy in September when the government starts to reduce its support measures.

At Ledlin Lawyers we frequently act for suppliers to enforce their personal guarantees. And if companies are the zombies waiting at the bottom of the economic cliff, then the directors who own them and have given personal guarantees are the great walking dead.

A common feature of the onboarding process for many suppliers is a personal guarantee taken from an owner or director of the company customer. These personal guarantees can lie dormant for months and years on end until the company customer can’t (or won’t) pay any longer.

The time that we get involved is often when the raft of excuses come rolling in, too. “I never signed a personal guarantee” “I was never given that document.” “That’s not my signature, someone must have forged it.” “I didn’t guarantee the debt to your company, it was to someone else not listed in the guarantee.” “I’ve got no personal assets.”

That’s just on any normal given day. But what happens in September when suppliers have been patient and forgiving and supportive to their zombie customers for months, only to be faced with non-payment anyway? That’s when more and more of these personal guarantees will rise from the dead and come stumbling out of the coffins woodwork. It won’t just be a raft, but a torrent of excuses.

So how do you get ready for said torrent? Review the personal guarantees that you think are likely to be invoked later in the year and ask yourself these 5 questions:

1. Did You Notify the Guarantor? 

When you took the guarantee, did you notify your customer and the director/owner guarantor in writing? If not, there’s no better time to start. It might just help you overcome zombie excuse numero uno – “I don’t remember giving a personal guarantee” and “that’s not my signature.”

In the case of Northstate Carpet Mills Pty Ltd v B R Industries Pty Ltd [2006] NSWSC 1057, Young CJ noted that it is commonplace for commercial entities to cut corners in the name of cost reduction. In doing so, it is common for entities (in that case a finance company) not to send their customer or guarantor copies of completed contracts, thereby showing too little attention to the formation of the contract and jeopardising the validity of the personal guarantee.

We recommend that all our clients review their standard procedures for notifying Customers and Guarantors that the Credit Application and Guarantee has been accepted and the Account has been opened. Take care to write specifically to the Guarantor once the documents have been accepted. This is particularly important where the Guarantor is not involved in the day-to-day running of the business. Why not also consider sending separate copies of the Guarantees to the Guarantors at the same time as the “Welcome Aboard” letter to the Customer?

2. If you have a multiple company structure, are all the companies included?

Many suppliers will list their parent company and their subsidiaries as the entities that are taking the personal guarantee. But how long has it been since you looked at those? Has your business undergone any restructures or name changes in that time? Are all the entities listed that need to be? If not, your personal guarantees could be out of date.

For example, say you took a personal guarantee from a customer in the name of Machine Sales Pty Ltd in 2016. A few years later, the same customer starts trading with your subsidiary Machine Repair Pty Ltd, but it is not listed in your personal guarantee. The guarantee will not apply to the debts owed to your subsidiary.

We recommend carefully reviewing the entities listed in your personal guarantees and updating them where necessary. We also recommend using language such as “including but not limited to” so that you still have some ammunition if you get hit with zombie excuse #2 – “I didn’t guarantee that specific company’s debt.”

3. Is the guarantee written in plain English and display a warning to get legal advice?

One problem with personal guarantees is the psychology behind them – many guarantors believe that they will never have to reach into their own pocket and put money up. It’s too hard to read and it’s just another document to be signed in the application or onboarding process.

We recommend including clear warning labels on your personal guarantee about it being an important legal document. This will help to alert guarantors that they need to read and understand the document more carefully. It will also help you later on if guarantors start saying things like “I never got independent legal advice.”

4. Check the witness

We recommend to all of our Clients that personal guarantees be in the form of a Deed. This is because, when it comes to personal guarantees a Deed is a particular type of legal document that has certain benefits over a contract or other type of agreement. But to be binding, there are certain technical requirements of Deeds which some guarantors cling onto to get out of payment.

For example, the Conveyancing Act (NSW) requires Deeds to be attested by at least one witness who is not a party to the deed. But what if you have a personal guarantee that hasn’t been witnessed? What is the effect of that? If you come across a guarantee deed that has not been witnessed, it will still be enforceable but not as a Deed. It will be limited to 6 years (instead of the usual 12 years if it had been witnessed) and it means that the Guarantor could challenge his or her guarantee by providing other evidence (such as conversations, emails, etc.).

Ideally, if you receive a Deed that has not been witnessed, you should return the document and ask the guarantor to have his or her signature re-witnessed. Where that is not possible, then you still have an enforceable agreement, it is just not as “tight” as if it was a technical Deed. Every reason to dot your I’s and cross your T’s from the very start.

5. Don’t forget bank account details 

Once upon a time, if you had a judgment against a customer you could apply to the Court for a garnishee order for debts on each of the 5 major banks. While it helped, you didn’t need to give the Court specific bank account details for the judgment debtor. Chances were you could stumble upon your customer’s bank account to satisfy your judgment.

Now, times have changed and the Court must be satisfied that you have grounds to believe that a particular bank is holding money owed to you. You need to explain the steps you took to identify the debt, which usually involves naming a specific bank account and how you obtained those details.

The best way to do that is to take the bank details for your customer and any guarantor in your application or onboarding process. If that’s not possible now, look back through your records to see if any previous payment remittances give you the same details.


Make sure that you are prepared for the zombie onslaught in September – not just in terms of your customers, but also the personal guarantees bound to be lurking in the background.


For more information, contact Holly Jackson  


Phone:              02-8488-3389