Voluntary administration does not automatically remove personal guarantees signed by directors. While the VA moratorium may temporarily restrict some enforcement action, creditors can still pursue guarantors during or after the process depending on the guarantee terms, the creditor’s rights, and the outcome of the voluntary administration.
On This Page
- Introduction
- What Is a Personal Guarantee?
- Why Do Creditors Ask for Personal Guarantees?
- What Happens to Personal Guarantees?
- Does Voluntary Administration Moratorium Protect Directors Personally?
- Does a DOCA Release a Director From a Personal Guarantee?
- What Happens to Personal Guarantees After Voluntary Administration Ends?
- What Directors Should Do
- Final Word
- FAQs
Introduction
When a company enters voluntary administration, many directors assume it will protect them from personal guarantees signed before the process.
However, that is not the case. In some situations, creditors may be able to pursue directors under those guarantees, even if the company itself enters VA.
This guide explains what personal guarantees are, how they are affected during voluntary administration, whether a DOCA releases directors from guarantees, and what directors should understand before deciding to appoint a voluntary administrator.
What Is a Personal Guarantee?
A personal guarantee is a legal promise where the director agrees to become personally liable if the principal debtor — the company — cannot repay the debt. It is often signed as a separate document alongside loan agreements or supply arrangements.
Directors generally provide personal guarantees when applying for:
- Business loans,
- Equipment or vehicle finance,
- Commercial leases,
- Supplier credit accounts, or
- Other business funding arrangements.
If the company later defaults, the creditor may be able to pursue the guarantor personally for the outstanding amount.
This means if a company moves towards insolvency, it can create personal financial exposure and potential personal bankruptcy risks for directors where guarantees have been signed.
Why Do Creditors Ask for Personal Guarantees?
Personal guarantees are commonly used to reduce a creditor’s risk when dealing with companies, particularly smaller businesses or where company assets are limited.
Many lenders, landlords, and suppliers request personal guarantees to reduce their risk, especially when the company is newly formed or has a limited trading history.
Because a company is a separate legal entity, creditors may recover little or nothing if the business fails. A personal guarantee gives the creditor another potential pathway to recover unpaid debts.
Suppliers
Trade suppliers often require director guarantees before offering credit terms or ongoing supply arrangements.
Landlords
Commercial landlords frequently require directors to personally guarantee lease obligations before granting premises to a company.
Banks and Financiers
Banks and equipment financiers commonly require guarantees for:
- Business loans,
- Equipment finance,
- Vehicle finance, and
- Overdraft facilities.
New or Higher-Risk Businesses
Personal guarantees are especially common where:
- The business is newly established,
- The company has limited assets,
- Trading history is short, or
- The creditor considers the arrangement higher risk.
What Happens to Personal Guarantees?
When a company enters voluntary administration in Australia, personal guarantees are temporarily frozen under a statutory moratorium. A temporary statutory moratorium takes effect immediately upon the administrator’s appointment, restricting creditor actions such as sending letters of demand or commencing court proceedings.
Usually, the guarantee itself continues to exist even after a voluntary administrator is appointed. However, the voluntary administration process may temporarily affect how and when a creditor can enforce that guarantee.
Later, if the company is unable to meet its obligations after a default event, the guarantee may become immediately enforceable once moratorium protections end.
The practical outcome can depend on factors such as:
- The type of creditor,
- The terms of the guarantee,
- Whether secured assets are involved, and
- The stage of the voluntary administration process.
Importantly, directors should not assume that personal liability disappears simply because the company enters voluntary administration.
For a broader overview, read our blog: Does Voluntary Administration Stop ATO Recovery Action?
Does Voluntary Administration Moratorium Protect Directors Personally?
The voluntary administration moratorium primarily protects the company, not the director personally.
While the moratorium may temporarily restrict some enforcement action during the administration period, it does not automatically release directors from personal guarantees or permanently prevent creditors from enforcing them later.
In practice, creditors cannot enforce personal guarantees while the company is actively in voluntary administration.
However, once the administration ends (the duration of the moratorium typically lasts for 25 to 30 business days), creditors may still be able to pursue guarantors depending on the outcome of the administration and the terms of the guarantee.
Does a DOCA Release a Director From a Personal Guarantee?
Not automatically.
A Deed of Company Arrangement (DOCA) primarily deals with the company’s debts and restructuring arrangements. It does not extinguish or release personal guarantees signed by directors unless the creditor specifically agrees to do so.
In many situations:
- Bank guarantees may continue,
- Supplier guarantees may remain enforceable, and
- Commercial lease guarantees may still survive after the DOCA is implemented.
This means a company may continue trading under a DOCA while directors still remain personally exposed under existing guarantees.
If directors want a guarantee to be released, this will require:
- A separate negotiated agreement with the creditor, or
- Specific release terms included in the arrangement.
The statutory moratorium expires as soon as a Deed of Company Arrangement (DOCA) is executed, allowing creditors to pursue legal proceedings for any unpaid shortfall.
What Happens to Personal Guarantees After Voluntary Administration Ends?
A personal guarantee cannot be exercised while a company is under voluntary administration, but once that period ends, the guarantee can be exercised immediately.
However, the ultimate impact on personal guarantees depends on the outcome voted on by creditors at the second creditors’ meeting.
If the Company Recovers
If the company survives and continues trading, some guarantees may still remain in place as part of the ongoing commercial relationship with lenders, landlords or suppliers.
In some cases, exposure may reduce over time if company debts are repaid.
If a DOCA Is Implemented
A company operating under a DOCA may continue trading, but personal guarantees often survive unless creditors specifically agree to release them.
This means directors may still remain personally exposed even though the company itself avoids liquidation.
If the Company Goes into Liquidation
If the company later enters liquidation, creditors may:
- Resume enforcement action,
- Pursue guarantors personally,
- Commence legal proceedings, or
- Negotiate settlements with directors.
In short, if a company goes into liquidation, the personal liability of the guarantor remains intact, allowing creditors to pursue the guarantor for the full amount of the guaranteed debt even if the company is no longer operational.
What Directors Should Do
Before appointing a voluntary administrator, directors should carefully review their personal guarantee exposure.
This includes:
- Identifying every signed personal guarantee,
- Reviewing guarantee terms and related security documents,
- Checking whether spouses or related parties also signed guarantees,
- Understanding which creditors hold guarantees,
- Assessing exposure to personal assets,
- Considering whether negotiated settlements may be possible, and
- Obtaining professional advice before restructuring decisions are made.
It is crucial to understand the full scope of what you are guaranteeing before signing a personal guarantee, as it can expose personal assets to claims if the company fails to pay its debts.
Final Word
Personal guarantees do not disappear when a company enters voluntary administration. The process may temporarily affect guarantee enforcement during the administration period, but it does not automatically remove personal guarantees or extinguish director liability.
The number one rule is to never give a personal guarantee where it can be avoided, as there is no legal requirement to provide them in most situations. If a personal guarantee is unavoidable, it is advisable to negotiate the terms of the guarantee to limit personal liability, such as ensuring it is secured against specific assets rather than being unsecured.
If your company is experiencing financial distress and personal guarantees are involved, seeking advice early can help directors understand their exposure before creditor pressure escalates further.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation, consultation to help you understand where you stand, what risks exist, and what options are realistically available before deadlines reduce control. Get in touch today.
FAQs
Does voluntary administration remove personal guarantees?
No. Voluntary administration does not automatically extinguish personal guarantees signed by directors or other guarantors.
A personal guarantee is a legally binding agreement where a director agrees to repay a debt if the company fails to meet its financial obligations, potentially exposing personal assets to claims.
Can creditors enforce personal guarantees during voluntary administration?
Creditors cannot enforce personal guarantees while the company is actively in voluntary administration. Under the Corporations Act 2001 (Cth), a personal guarantee given by a director, spouse, or relative cannot be enforced during the administration period without the explicit permission of the court.
A creditor can only act under a personal guarantee during voluntary administration if they obtain explicit permission from the court, which is rarely granted.
However, this does not necessarily prevent creditors from enforcing the guarantee later once the voluntary administration ends.
Can personal guarantees survive after a company is deregistered?
Yes.
Deregistration of the company does not necessarily extinguish personal guarantee obligations signed by directors or other guarantors.
Does the voluntary administration moratorium protect directors personally?
Not fully.
The voluntary administration moratorium primarily protects the company. While it may temporarily delay some enforcement action, it does not automatically remove personal liability under guarantees.
More on this: Voluntary Administration Moratorium
Does a DOCA release directors from personal guarantees?
Not automatically.
A DOCA generally deals with company debts and restructuring arrangements, not personal guarantee obligations. Guarantees often remain unless the creditor specifically agrees to release them.
More on this: What Is a DOCA?
Can a bank pursue a director personally after voluntary administration?
Yes.
If the director signed a valid personal guarantee, the bank may still pursue the guarantor depending on the outcome of the administration and the terms of the guarantee.
Can landlords enforce director guarantees after voluntary administration?
Yes.
Commercial lease guarantees commonly survive voluntary administration unless the landlord agrees to release the guarantor.
What happens to personal guarantees if the company goes into liquidation?
Creditors may resume or commence recovery action against guarantors after liquidation.
This can include:
- Legal proceedings,
- Settlement negotiations,
- Asset recovery action, or
- Bankruptcy-related recovery processes.
Can directors negotiate personal guarantee settlements?
Sometimes.
Depending on the creditor, guarantee terms and the director’s financial position, negotiated settlement arrangements may be possible. Company directors should seek legal advice to best assess their particular situation.
Does voluntary administration protect personal assets?
Not automatically.
Where valid guarantees exist, directors may still face exposure involving personal assets and personal financial liability.
Should directors review guarantees before entering voluntary administration?
Yes.
Before appointing a voluntary administrator, directors should identify all guarantees, review the terms carefully, and understand which creditors may still pursue them personally after the administration process.
Can creditors still sue directors personally?
In some situations, yes.
If a valid personal guarantee exists, a creditor may still be able to pursue the director personally for unpaid company debts.
The level of exposure will often depend on:
- The terms of the guarantee,
- The amount owed,
- The creditor’s recovery approach, and
- Whether any negotiated settlement can be reached.
Can multiple directors share guarantee liability?
If multiple directors signed a joint and several guarantee, paying more than the fair share gives a right of contribution against co-directors.
