Small business restructuring and directors’ personal guarantees
During a small business restructuring (SBR), a creditor can’t enforce a personal guarantee given by a director, or by a director’s spouse or relative, for the company’s debts without the court’s permission. That protection ends when the restructuring plan is made, or when the restructuring otherwise ends. An SBR plan deals with the company’s debts. It is not a release of the guarantor, so a creditor holding a guarantee may still be able to pursue the guarantor for what the company doesn’t pay.
During the restructuring
- Who is protected: a director of the company, the director’s spouse, and the director’s relatives, where they have guaranteed the company’s liabilities.
- What is paused: enforcement of the guarantee. A creditor needs the court’s permission, and the court can impose terms.
- How long it lasts: until the plan is made or the restructuring ends for another reason, such as creditors rejecting the plan.
The pause gives the directors time to prepare the plan without guarantors being pursued at the same time. It does not cancel or reduce the guarantee.
After the plan is made
Once creditors accept the plan, the pause on guarantees ends. The plan binds the company and its creditors to the extent of their admissible debts, and when the plan is completed the company is released from those debts. A guarantee is a separate promise by the guarantor, and the plan does not release it.
So a creditor that holds a director’s guarantee may be able to pursue the guarantor once the plan is in place. A creditor that is paid under the plan will often look only to the shortfall, but that is not guaranteed. Exactly what a creditor can recover depends on the wording of the guarantee and the facts, so get advice on each guarantee.
If the plan is rejected
If creditors don’t accept the plan, the restructuring ends and the pause on guarantees ends with it. The company’s debts remain owed in full, and a creditor can pursue the guarantor for the full guaranteed amount. See what happens if creditors reject an SBR plan.
Signed personal guarantees for the company?
Before you appoint a practitioner, we can go through each guarantee with you and work out your likely exposure under the plan. Book a free 30-minute call with Luke D’Costa, Senior Manager – Debt Strategist.
Book a free 30-minute call Sydney 02 9660 3532 · Brisbane 07 3868 1888
Guarantees directors commonly give
| Guarantee | What to check before the restructuring |
|---|---|
| Supplier trade accounts | Most credit applications include a director’s guarantee. Check every supplier the company owes money to. |
| Premises leases | Leases often include a guarantee, and sometimes a bank guarantee or bond. Owners and lessors have separate rights during and after the restructuring. |
| Equipment and vehicle finance | These are usually secured. A secured creditor is bound by the plan only for any shortfall below the value of its security, unless it consents to more. |
| Bank loans and overdrafts | Banks commonly take director guarantees, and sometimes a mortgage over a director’s own property, such as the family home. |
Planning for guarantees in an SBR
- List every guarantee before the appointment, with the creditor, the amount owed and what the guarantee covers.
- Check the security. A search of the Personal Property Securities Register shows registered security interests over the company’s assets.
- Talk to guaranteed creditors. A creditor that will be paid under the plan and also holds a guarantee may be open to an agreement about the shortfall.
- Work out your personal position. If the guarantees are larger than you can meet, you may need advice about your own finances. A company’s restructuring is not a director’s bankruptcy; see liquidation vs bankruptcy.
Guarantees and director penalties are different
A director penalty is not a guarantee. It is a personal liability the law imposes for some of a company’s unpaid tax and super. If you have received a non-lockdown director penalty notice, appointing a restructuring practitioner within the 21 days remits the penalty. Lockdown penalties are not remitted by the restructuring, and the ATO says the director remains personally liable for any balance, although plan payments may reduce it. See SBR and director penalty notices.
Common questions
Can a creditor enforce my personal guarantee during SBR?
Not without the court’s permission. While the restructuring is under way, creditors can’t enforce guarantees given by a director, or a director’s spouse or relative, for the company’s liabilities unless the court allows it.
Does an SBR plan release my personal guarantee?
No. The plan deals with the company’s debts and releases the company on completion. The guarantee is a separate promise, and a creditor may still be able to pursue the guarantor for what the company does not pay.
When does the protection for guarantees end?
When the restructuring plan is made, or when the restructuring ends for another reason, such as creditors rejecting the plan.
Do SBR protections cover my spouse’s guarantee?
Yes. The pause during the restructuring covers guarantees given by a director, the director’s spouse or a relative for the company’s liabilities.
Is a director penalty notice the same as a personal guarantee?
No. A director penalty is a personal liability imposed by law for some unpaid company tax and super. A non-lockdown director penalty can be remitted by appointing a restructuring practitioner within 21 days.
Sources: Corporations Act 2001 (Cth) Part 5.3B; ASIC, Small business restructuring and the restructuring plan; ATO, Small business restructuring. This page is general information, not advice about your circumstances. Last reviewed: 16 October 2026.
Written by John Chand, Principal and Registered Liquidator. John has more than 17 years’ insolvency experience. Meet the team.
