Insolvency – Are Personal Guarantees Caught?

When you are made bankrupt or enter into a Part X Personal Insolvency Agreement (PIA) or Part IX Debt Agreement, debts that you owe pursuant to personal guarantees you have given are normally provable. This means that the holder of the guarantee cannot normally pursue you outside the bankruptcy or the agreement.

It is, however, prudent to revoke a personal guarantee upon entering bankruptcy or an insolvency agreement. The reason for this is that if the holder of the guarantee continues to make supplies or extend credit to the guaranteed party after the date of bankruptcy or the insolvency agreement, these debts can be claimed against you.

In Darwin Food Pty Ltd v Gray [2018] SASCFC 84 the Supreme Court of South Australia ruled that guaranteed debts can be pursued separately to the bankruptcy / insolvency regime if:

1. The Guarantee is revocable;
2. The debts depend on future events happening after the date of the bankruptcy / insolvency; and
3. The debts do not exist at the date of the bankruptcy / insolvency.

If you are considering bankruptcy or insolvency, it is important to look at any guarantees you have given, and be prepared to revoke them at the right time.

Please let us know if you would like more information about bankruptcy or insolvency.

Leave a Reply

Your email address will not be published. Required fields are marked *