Advisors often come across clients who have signed personal guarantees without fully understanding the long-term implications. These guarantees are widely used across lending, supplier credit, and intergenerational finance but they rarely receive the scrutiny they deserve until a dispute arises or risk escalates.
At de Jonge Read®, we help clients and their advisors navigate the legal and commercial risks of personal guarantees. In certain situations, a strategy called determining a guarantee can be used to limit future liability and help reset the relationship with the lender.
What is determination of a guarantee?
Determining a guarantee is a formal process that allows the guarantor to limit their liability to the amount owed at the time of notification. It applies most effectively to fluctuating credit facilities such as:
- Bank overdrafts
- Supplier accounts
- Revolving credit or floor plan finance
After determination, the guarantor remains liable for the balance as at the determination date, plus interest and fees on that amount but is no longer liable for any further credit extended.
This action must be in writing and submitted to the lender. In many cases, it results in the freezing or closure of the existing facility and the creation of a new facility without the former guarantor.
Why it matters for your clients
Guarantees are often left in place even after:
- Changes in business ownership or directorship
- Breakdown in business or family relationships
- Exit of the guarantor from active business involvement
- Sale of assets used to secure the guarantee
We frequently assist clients who believed they would be released from guarantees once a debt was reduced or the purpose of the loan completed, only to discover the guarantee still applied.
Real-world examples
Family dispute: A father who guaranteed his son’s overdraft believed the arrangement would end after the sale of an investment property. It did not. Concerned about further risk, the father determined his guarantee. The bank froze the account and opened a new one under different terms, limiting the father’s exposure.
Director exit: A company director in dispute with co-directors sought to exit a business but remained exposed under multiple guarantees. He determined them at the time of lowest monthly debt, forcing a shift in banking arrangements. The business settled shortly after, on terms that had previously been rejected.
These cases demonstrate how this tool can be used strategically to reduce pressure, encourage resolution, or cap ongoing risk.
Key Considerations as Advisors
- Review client guarantee documents when ownership or roles change
- Identify guarantees that remain active after a client exits a business
- Advise clients on how and when to determine guarantees appropriately
- Refer clients for assistance with lender negotiations or commercial disputes
Helping Your Clients Reduce Unnecessary Guarantee Exposure
If you have clients who are withdrawing from a business, involved in a dispute, or uncertain about their personal liability under a guarantee, we are here to help.
At de Jonge Read®, we work alongside you to:
- Clarify your clients’ personal obligations under signed guarantees
- Develop practical strategies to reduce or limit future liability
- Support commercial outcomes during disputes or financial transitions
Please reach out to us if your clients would benefit from independent, commercially focused advice on managing personal guarantee risk.
Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1775114079c.arj1775114079d@ofn1775114079i1775114079
Did you know?
Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
