A director who resigns does not automatically stop being a guarantor of the company’s debts.

A personal guarantee to a bank survives your resignation, your share transfer and even a settlement deed.

The bank is not a party to your exit agreement and is not bound by it.

Until the lender formally releases you, you remain personally liable — often for years.

The legal issue: resignation and release are two different things

Resigning as a director is a step you can take unilaterally. Being released from a personal guarantee is not. A guarantee is a separate contract between you and the lender. The company’s internal reshuffle does not touch it.

This distinction routinely surprises departing business owners. They negotiate an exit, sign the transfer of their shares, lodge the ASIC forms — and then discover they are still on the hook to the bank. The remaining owner may promise to “attempt” to remove them, but an attempt is not a release.

Two practical mechanisms exist to achieve an actual release: the remaining party refinances the loan in their own name, or the lender agrees in writing to discharge the departing guarantor. Both depend on the lender’s assessment of the company and the remaining guarantor — not on what the departing party wants.

How this arose in a matter we acted on

In a shareholder dispute we handled through 2024 and 2025, our client was a 50% shareholder and co-director of a company. He and the other owner had each given the company’s bank personal guarantees over loans that, by early 2025, totalled around $100,000, not due to be repaid until 2029.

The two directors could not work with each other anymore. The parties negotiated our client’s exit: he would resign as director, transfer his 50% shareholding, keep certain equipment and intellectual property, and receive a cash sum. The sticking point was the personal guarantee.

Correspondence with the bank confirmed the practical reality — the bank would only assess removing the guarantee once the departing director had resigned, the shareholding was regularised, and up-to-date financials supported the remaining guarantor alone.

When negotiations stalled, our client commenced an oppression proceeding in the Supreme Court of Victoria (Commercial Court, Corporations List), which was referred to the Court’s Oppression Proceeding Program. We successfully negotiated for our client’s personal guarantee to be released. The matter was resolved and the proceeding came to an end.

Practical guidance for anyone leaving a jointly owned company

  • Treat the guarantee as the central term, not an afterthought. Your resignation is easy; your release is the hard part.
  • Insist on an outcome, not an “attempt.” A clause requiring “reasonable endeavours” leaves you exposed if the bank says no.
  • Get an indemnity in the meantime. If release cannot happen immediately, require the remaining owner to indemnify you against bank claims until it does — and consider security for that indemnity.
  • Confirm the lender’s actual requirements early. Ask the bank what it needs (resignation, share position, financials) before you finalise terms, so the deed reflects reality.
  • Watch the timing. Releasing a guarantee can take weeks and depends on the remaining party’s creditworthiness, which you cannot control.

Personal guarantees are governed by ordinary contract principles, while the oppression remedy for shareholders sits in section 232 and 233 of the Corporations Act 2001 (Cth). Victorian oppression proceedings are managed under the Supreme Court’s Practice Note SC CC 8 – Oppressive Conduct in the Affairs of a Company. General guidance on directors’ obligations is available from ASIC.

Quick Answer

Resigning as a director does not release you from a personal guarantee you gave to the company’s bank. The guarantee is a separate contract with the lender, who is not bound by your exit deed. Until the bank agrees in writing to release you — or the debt is refinanced — you remain personally liable, sometimes for years. Negotiate a real release and an interim indemnity.

FAQs

Does resigning as a director cancel my personal guarantee? No. Resignation ends your role in the company but has no effect on a guarantee you gave the bank. The guarantee continues until the lender formally releases you or the loan is refinanced.

Can the other shareholder force the bank to remove me? No. Only the lender can release you. The remaining owner can apply for a refinance or discharge, but the bank decides, based on its own assessment of the company and the remaining guarantor.

What protection can I get if release is not immediate? Ask for a written indemnity from the remaining party covering any bank claim until you are released, ideally supported by security, plus a clear obligation on them to pursue the release actively.

Is court the only way to resolve a 50/50 shareholder deadlock? No. Court is often the last resort. An oppression proceeding under the Corporations Act can be a lever, but many disputes resolve by negotiated deed — sometimes after proceedings are issued, then dismissed by consent.

About the Author

Meng Cheong – Partner Meng Cheong was the partner responsible for this matter and advises on shareholder disputes, business separations and commercial negotiations. He led the negotiation of the exit terms, the guarantee and indemnity provisions, and the conduct of the oppression proceeding in the Supreme Court of Victoria.

Anna-Nikol Tanti – Lawyer
Anna-Nikol Tanti assisted Meng Cheong throughout the matter, including taking the client’s instructions, managing correspondence with the other side, preparing the amended deed for circulation, and coordinating service of the court documents.

 

This article provides general information only and is not legal advice. Every matter turns on its own facts. You should obtain advice specific to your circumstances before acting.