Director Guarantees: Signing for the company can put your personal assets at risk
A company is a separate legal entity from its directors. Ordinarily, a director is not personally liable for the company’s debts merely because they manage the company or sign an agreement on its behalf.
The position changes significantly where the director also signs a personal guarantee.
The recent Federal Court decision in Ramoo v Grow Trade Finance Pty Ltd [2026] FCA 286 provides an important reminder that directors must carefully consider both the capacity in which they sign finance documents and their conduct when the company’s finance arrangements are later varied.
What is a personal guarantee?
A personal guarantee is a promise by the guarantor to meet another person’s obligations if that person does not do so.
In a business finance arrangement, this usually means that if the company fails to repay the lender, the director who provided the guarantee may be required to repay the debt personally. This can remove much of the protection that would otherwise result from operating through a company.
Guarantees are also commonly accompanied by:
- An indemnity, which may create broader obligations than the guarantee itself;
- An obligation to pay enforcement and legal costs;
- A charge over the guarantor’s property; and
- Authority to register a security interest on the Personal Property Securities Register.
The director’s potential exposure may therefore extend well beyond the amount initially borrowed by the company.
What happened in Ramoo?
Medoc International Pty Ltd entered into a trade finance facility with Grow Trade Finance Pty Ltd. The facility initially had a limit of $100,000.
Medoc’s sole director, Ms Ramoo, signed the agreement both as director of Medoc and personally as guarantor. The agreement required her to guarantee the company’s obligations, indemnify the lender and charge all her present and future property with the performance of her obligations.
The facility was later increased to $250,000. Although Ms Ramoo signed the variation on behalf of Medoc, she did not sign the separate execution block provided for her as guarantor.
After Medoc defaulted, receivers were appointed over the company’s property and Ms Ramoo’s personal property. Ms Ramoo argued, among other things, that she had not agreed in her personal capacity to guarantee the increased facility.
The Court rejected that argument and found that she had consented to the variation by her conduct.
Consent can be established without a signature
The Court accepted the general principle that a material alteration to the arrangements between a lender and borrower may discharge a guarantor if the guarantor did not consent to it.
Importantly, the Court also rejected the lender’s argument that the original promise to guarantee “all amounts owing” automatically extended to the increased facility. Because the facility limit defined the potential extent of the guaranteed debt, Ms Ramoo’s consent to its increase was required.
However, consent did not necessarily require her signature in the guarantor’s execution block.
Ms Ramoo had requested the increase on Medoc’s behalf, returned the variation document without expressing any disagreement, caused Medoc to draw down on the increased facility and knew the additional finance had been provided after the variation was returned.
The Court found that this conduct communicated her consent. Any private intention not to guarantee the increased amount was insufficient because it had not been communicated to the lender and was inconsistent with her outward conduct.
This is an important distinction for directors. Although the roles of director and guarantor are legally separate, conduct undertaken as director may still provide evidence that the person consented to a variation in their personal capacity.
The director’s personal property was exposed
The consequences of the guarantee were not limited to a personal claim for repayment.
The agreement charged all of Ms Ramoo’s present and after-acquired property, including property held legally, beneficially, jointly or on trust. Security interests were registered over her personal property, and a caveat was lodged over her real property.
The Court found that the contractual security became immediately enforceable upon Medoc’s default. Under the particular terms of the agreement, no separate demand upon Ms Ramoo was required before the lender could appoint receivers over her personal property.
The Court declared that the lender, including through its receivers, could seize Ms Ramoo’s personal property by a method permitted by law.
What should directors do before signing?
Before signing finance or credit documents, directors should identify:
- Whether they are signing only for the company or also personally;
- Whether the document contains a guarantee, indemnity or charging clause;
- Whether the guarantee is capped or unlimited;
- Whether it covers future advances, variations, interest and enforcement costs;
- What personal property may be secured; and
- When the lender may enforce the guarantee or appoint receivers.
Directors should also obtain advice before approving an increase or other variation to a company’s facility. If a director does not consent to their guarantee extending to the variation, that position should be clearly communicated in writing before the variation is returned or the company uses the additional finance.
The decision in Ramoo demonstrates that leaving a signature block blank may not be enough. The Court will consider the agreement as a whole, the surrounding communications and what the director did after the variation was proposed.
PGC Legal can assist directors to understand and negotiate guarantees before they are signed, advise on proposed variations and respond to demands or enforcement action under an existing guarantee.
Please contact Brenton Priestley, Partner, Jonathan Khoury, Special Counsel, or Jake Richter, Associate.
This information is general in nature and does not constitute legal advice
