Director's Guarantee vs Personal Guarantee: What's the Difference in NZ?
A director's guarantee is a personal guarantee given because you are a director of the company, and the legal effect is the same: if the company doesn't pay, you do. The label matters less than the wording. Check who is guaranteeing, which debts it covers, whether it has a cap, and when it ends.
The Two Compared
| Director's guarantee | Personal guarantee | |
|---|---|---|
| Who gives it | A director, because of their role in the company | Any individual: a director, shareholder, partner or family member |
| What it does | Makes that director personally liable for the company's debt to the supplier | Makes that individual personally liable for the debt |
| Where you usually see it | The guarantee section of a trade account credit application | Trade accounts, leases, loans and other finance |
| Does the label change your liability? | No | No |
| What does change it | The wording: cap, duration and which debts it covers | The wording: cap, duration and which debts it covers |
In NZ trade accounts the two terms are used almost interchangeably. For the basics of what a guarantee is and what happens on default, see what a personal guarantee on a trade account means. This article is about the differences that actually change your risk.
What Actually Changes Your Exposure
| Wording to look for | What to check | Why it matters |
|---|---|---|
| Continuing or specific | Does it cover one account at one limit, or everything the company owes now and later? | A continuing guarantee can keep covering the debt after a limit increase |
| Capped or unlimited | Is there a dollar figure on your liability? | A cap sets your worst case |
| Interest and costs | Does it cover interest, collection and legal costs on top of the debt? | The amount you could owe can be well above the invoices |
| Joint or several | If there are two directors, can the supplier pursue one of you for the whole amount? | Joint and several wording lets the supplier choose who to ask |
| Indemnity wording | Does it say you must pay even if the company's debt turns out to be unenforceable? | It can widen what you are on the hook for |
| End date | Does it end on a date, on release, or never? | Without an end date it runs for as long as the account does |
Illustrative example: a Napier cafe company opens a $10,000 trade account and its director signs a continuing guarantee covering all amounts owed by the company. A year later the supplier lifts the limit to $30,000. The cafe closes owing $22,000. Because the guarantee was continuing and uncapped, the supplier can ask the director for the full $22,000, plus any recovery costs the guarantee covers. If the guarantee had been capped at $10,000, the exposure would have stopped there. Your own guarantee may be worded differently, so read it.
"I Didn't Realise" Is Not a Way Out
Under section 25 of the Contract and Commercial Law Act 2017, a mistake about what a contract means is not a ground for relief for mistake. The Act uses a personal guarantee as its own example: a person signs an offer guaranteeing a company's debts, mistakenly thinks it doesn't affect their personal liability, and that is a mistake in interpretation that can't support an application for relief.
The practical lesson is to read the guarantee before you sign it, ask the credit team what each clause means, and get a quick professional opinion when the credit limit is large.
Which One Applies to Your Trade Account?
Most NZ trade account forms ask a director to sign a guarantee, often in the same signature block as the application. Whatever it is called, treat it as personal liability. Check whether the form says you are signing personally and not only on behalf of the company.
Next steps: if a guarantee is a deal breaker, see what you can ask a supplier for. If an account has already gone wrong, see what happens if you default on a trade account. For the wider picture, see the Business Credit guide and the Trade Accounts guide. This article is general information, not legal advice. For your own terms of trade or a specific situation, speak to a New Zealand lawyer.
Frequently Asked Questions
Is a director's guarantee the same as a personal guarantee?
Legally they have the same effect. A director's guarantee is a personal guarantee given by someone in their role as a director. The wording of the document matters more than its name.
Am I personally liable if I sign a director's guarantee?
Yes, for what the guarantee covers. If the company cannot pay, the supplier can ask you personally for the money, subject to the terms you signed, such as any cap or time limit.
Can a guarantee cover more than the original credit limit?
Yes. Many guarantees are written to cover everything the company owes the supplier, including amounts above the original limit. Check whether yours covers only that account at that limit, or all amounts owed now and in future.
Can I get out of a guarantee if I did not understand it?
Usually not. Section 25 of the Contract and Commercial Law Act 2017 says a mistake about what a contract means is not a basis for relief for mistake, and the Act uses a personal guarantee as its example. Ask questions and get advice before signing.
Do all NZ trade accounts need a director's guarantee?
No. Established companies with a strong payment record sometimes open accounts without one. Suppliers most often ask for guarantees from newer companies and for larger credit limits.
