Quick answer
A demand on your personal guarantee means the creditor is asking you, not the company, to pay. The letter itself usually sets a short deadline, often 7 to 14 days. If you don't pay or agree terms, the creditor can sue you, get judgment, and then use a bankruptcy notice for a judgment of $10,000 or more. That gives you 21 days to pay. Settling or refinancing early is cheapest.
Key points
- A guarantee is your own promise. The company going into liquidation doesn't cancel it.
- During a voluntary administration, ASIC says a creditor can't act on a director's guarantee without the court's consent, but a DOCA doesn't stop recovery.
- The usual path is demand, then court claim, then judgment, then a bankruptcy notice. Each step adds interest and costs.
- A bankruptcy notice needs a final judgment of at least $10,000 that is no more than 6 years old, and gives 21 days to comply.
- Check for a charging clause. It can let the creditor lodge a caveat over your home.
A demand on your personal guarantee changes who the creditor is chasing. Until now, the debt sat with the company. This letter says the supplier, landlord or lender is coming to you, under the guarantee you signed when the account or loan was opened. It usually gives a short deadline, often 7 to 14 days. After that, the creditor can start court action against you personally.
The letter is serious, but it’s not a court order. It’s the start of a path with several stages, and the cheapest place to step off that path is right now.
First, which guarantee is this?
Before you think about money, pull out the guarantee itself. If you can’t find it, ask the creditor for a copy in writing. Many directors signed one years ago, inside a credit application, and have never looked at it since. Four things decide how much pressure you’re really under.
| Check | What to look for | Why it matters |
|---|---|---|
| Who you guaranteed | The company name and ACN on the guarantee | If it’s a different entity, or an old company, the demand may be wrong |
| Limited or unlimited | A cap on the amount, or “all moneys” wording | An “all moneys” guarantee covers interest, fees and legal costs as well |
| Continuing or not | Whether it covers future debts, and whether you ever revoked it | Former directors are often still liable if they never formally ended the guarantee |
| Charging clause | Words like “charges all real property” or “grants a charge” | This may let the creditor lodge a caveat over your home |
Then compare the amount demanded with your own records of the account. Disputed invoices, credits that were never applied and late fees added in bulk are common. Every dollar you knock off now is a dollar you don’t have to fund.
If more than one director signed, check that too. Most guarantees are “joint and several”. That means the creditor can chase any one of you for the whole amount, and you sort out the split between yourselves later.
What happens if I don’t pay? The path from letter to bankruptcy
Creditors enforcing a personal guarantee usually follow the same sequence. Knowing it tells you how much room you have, and what each delay will cost.
| Stage | What happens | Your clock | What gets added |
|---|---|---|---|
| Demand on guarantee | Creditor writes to you personally | Whatever the letter says, often 7–14 days | Interest under the account terms |
| Caveat (if charging clause) | Creditor lodges a caveat on your property’s title | No set response time, but it blocks dealings on the title | Lodgement and legal costs |
| Court claim | Creditor sues you as guarantor | Generally 21 days (Vic) or 28 days (NSW, Qld) from service | Filing fees and legal costs |
| Judgment | Default judgment if you don’t respond, or judgment after a hearing | Enforcement can start | Post-judgment interest |
| Bankruptcy notice | Creditor applies to AFSA using the judgment | 21 days from service | More costs |
| Creditor’s petition | Application to court for a sequestration order | The hearing date | Petition costs, trustee fees if made bankrupt |
Two of those steps come with precise rules worth knowing.
The bankruptcy notice threshold. AFSA says a creditor can apply for a bankruptcy notice when it holds a final judgment for $10,000 or more that is no more than 6 years old. Post-judgment interest can’t be counted to reach the $10,000. Once the notice is served, you have 21 days to pay, make an arrangement the creditor accepts, or apply to have the notice set aside. If you do none of these, you’ve committed an act of bankruptcy. The creditor then has six months to file a creditor’s petition.
The court claim clock. Our guide to being served with a court claim for a business debt sets out the response times and your three options: defend, admit or pay. A guarantee claim works the same way. The only difference is that the defendant is you, not the company.
Notice what’s missing from that table: a statutory demand. Statutory demands are only for companies. A creditor enforcing against you personally goes through the courts and AFSA. That route is slower than a statutory demand, which gives you more time to settle.
Does the company’s administration or liquidation protect me?
This is the question most directors ask first, and the answer depends on the stage the company is at.
- Company still trading. No protection. Most guarantees let the creditor demand payment from you as soon as the company defaults, without suing the company first.
- Voluntary administration. ASIC’s guide for creditors says a creditor holding a personal guarantee from a director “cannot act under the personal guarantee without the court’s consent” while the administration runs. This gives you breathing room, but only until the administration ends.
- Deed of company arrangement. ASIC is clear that a DOCA “does not prevent a creditor who holds a personal guarantee” from recovering the debt from the guarantor. Directors are sometimes surprised by this. The company gets its deal, but the guarantee stays alive.
- Liquidation. No stay for guarantors. Creditors often call on guarantees soon after a liquidator is appointed, because the dividend from the company may be small or years away.
So if the company is heading towards a formal process, the guarantees you signed should be part of that decision from the start. Our page on how to avoid liquidation looks at funding routes that deal with the company’s debts and the guarantees in one move.
When the creditor is a bank: an extra step in your favour
If the guarantee was given to a bank that subscribes to the Banking Code of Practice, you get some extra protection. The 2025 version of the Code took effect on 28 February 2025. It requires a subscribing bank, before it enforces a mortgage over a guarantor’s home, to encourage the guarantor to tell the bank about their circumstances so other options can be discussed. Use that step. Put a written proposal in front of the bank early, and keep a copy.
Trade suppliers, equipment financiers and private lenders aren’t bound by the Banking Code. With them, the strength of your proposal is what counts.
Your four realistic ways out
Once you know the guarantee is valid and roughly what you owe, the options narrow quickly.
1. Dispute what’s wrong, pay what’s right
If the amount includes things you don’t owe, put that in writing before the letter’s deadline. Agree on the correct figure, and get legal advice if the guarantee itself is in doubt.
2. Offer instalments
This is possible if the creditor trusts you to keep paying. The risk is that most instalment deals keep the full “all moneys” balance alive, and interest keeps running. Miss a payment and the creditor can go straight to court.
3. Settle for a lump sum
This is often the strongest option. A creditor looking at months of court action, then enforcement, then a possible bankruptcy that pays it a few cents in the dollar, will often accept less in exchange for cash now. Make sure the settlement includes a written release of the guarantee and the removal of any caveat. Our page on funding a lump-sum creditor settlement shows how these deals are usually put together.
4. Refinance against property
If you own property with equity, a second mortgage or caveat loan can pay the creditor out in full. That replaces an urgent demand with an ordinary loan on terms you can plan around. This is often the route when the creditor has already lodged a caveat or a court claim is close. See using a caveat loan to meet a deadline.
If the guarantee is valid and you’d rather close it out than fight it, check your funding options here. Telling us about the demand won’t touch your credit file.
Illustrative example: a supplier calls in a director’s guarantee
Illustrative only. A composite scenario, not a real client. An electrical contracting company in Geelong lost two big jobs when a builder went under. It fell 120 days behind with its electrical wholesaler. The director had signed a personal guarantee in the original trade credit application six years earlier. It was an “all moneys” guarantee with a charging clause. The wholesaler stopped supply and sent the director a demand: pay in full within 14 days.
The director’s first 48 hours:
- Pulled the guarantee and the statement. This turned up a set of late fees added in one hit and a credit note for returned stock that had never been applied.
- Wrote to the wholesaler’s credit manager. The letter disputed those items, acknowledged the rest, and said a settlement offer would follow within 10 days.
- Asked about funding before making the offer. The director owned a home with solid equity behind the first mortgage. The company still had steady work and clean recent bank statements.
The wholesaler accepted a reduced lump sum, on the condition that the guarantee was released and no caveat was lodged. Funding was arranged against the home as a second mortgage, the account was settled, and the director signed a new trade agreement with a lower credit limit.
What made it work was the order: guarantee first, then the true figure, then the funding, then the offer. It doesn’t always go that smoothly. Funding takes as long as the property, the documents and the valuation take. The earlier the conversation starts, the more choices you keep.
When funding isn’t the answer
It’s worth being honest about this.
- Several guarantees called at once. If the bank, the landlord and two suppliers are all calling on your guarantees, paying one may only move you up another creditor’s queue. Look at the whole picture first. Several creditors chasing at once helps you rank them.
- The company can’t recover. If the business behind the guarantee is finished, any new loan has to be repaid from your personal income and assets. Sometimes that still makes sense, because it protects your home from a bankruptcy trustee. Sometimes it doesn’t, and a conversation with a registered insolvency practitioner or a personal insolvency adviser is the better next step.
- The guarantee may not be valid. Wrong entity, a revoked guarantee, a signature you didn’t give. Get legal advice before you pay anything.
Where the guarantee is valid, the debt is real and you have property equity or a trading business behind you, funding can turn a personal enforcement threat into an ordinary loan. Property-secured options run from $20,000 to $5,000,000 against residential or commercial property. Unsecured cash-flow funding for trading businesses is typically $5,000 to $500,000, sized on turnover and bank statements. Any lender will compare the estimated total cost of finance with the interest, costs and risk you’d otherwise carry. Bad credit and ATO debt are considered case by case.
You signed to back your business. Let’s see how we can back you now.
Most directors sign a personal guarantee to get the business going. When that guarantee is called, it’s usually because something outside your control went wrong: a customer collapsed, a season failed, or the cash ran out. We help directors and sole traders settle and refinance guarantee debts regularly. We’re comfortable with creditor demands, caveats and court claims.
Our enquiry takes about a minute. Asking won’t affect your credit score, because nothing is checked until you decide to go ahead. We don’t send your details to a pile of lenders, so you won’t get a flood of calls. One real person reads your situation and calls you to talk it through.
Please fill in the form as accurately as you can. Include who the creditor is, the amount demanded, the deadline in the letter, whether a caveat or court claim has arrived yet, and any property you could use as security. Getting the details right is how we match the right option the first time, inside the time you have.
Frequently asked questions
Can a creditor call on my personal guarantee if the company is still trading?
Usually, yes. Most guarantees let the creditor demand payment from the guarantor as soon as the company defaults. The creditor doesn't have to sue the company or wait for a liquidation first. Read the demand clause in your guarantee to see exactly what triggers it.
Is my personal guarantee still enforceable after the company goes into liquidation?
Generally, yes. The guarantee is a separate promise you made personally, so the company's liquidation doesn't release you. Creditors often call on guarantees soon after a liquidator is appointed, because they know the dividend from the company may be small or slow.
Can a creditor enforce my guarantee while the company is in voluntary administration?
ASIC's guide for creditors says a creditor holding a personal guarantee from a director cannot act under it during the administration without the court's consent. That protection ends with the administration. ASIC also notes that a deed of company arrangement doesn't stop a creditor recovering under a personal guarantee.
Can a creditor go after my house over a personal guarantee?
Potentially. If the guarantee has a charging clause, the creditor may lodge a caveat over property you own. Without one, it would usually need to sue, get judgment and then enforce the judgment, or bankrupt you. Either way, your home equity is at risk if the debt goes unresolved. That's also why it can often fund the settlement.
How long do I have to respond to a demand under a personal guarantee?
The demand letter sets its own deadline, often 7 to 14 days. That deadline isn't a court deadline, but it tells you when the creditor plans to start legal action. If you're later served with a court claim, the court's time limit applies: generally 21 days in Victoria and 28 days in NSW and Queensland.
Can I negotiate a discount on a personal guarantee debt?
Often, yes, especially when you can offer a prompt lump sum. A creditor weighing a long court process and enforcement against cash now will often take less than the full claim. Get any agreement in writing, including a full release of the guarantee once the settlement is paid.
Will borrowing to pay a guarantee debt count as a business loan?
Usually, yes. The guarantee secured a business debt, so funding to pay it out is generally assessed as business-purpose lending. The lender will want the guarantee, the demand and the account history so it can confirm what the money is for.