Yes, with a Directors Personal Guarantee. A Director of a company is a separate legal entity to the company itself. This was the whole reason Limited companies were established, to allow Commerce and Business to thrive whilst not immediately affecting the person that runs the company financially. It encourages a Free Market and is a huge reason we have the Financial Resources and Markets we have today. This is even discussed in Yuval Noah Harari’s book Sapiens about how Humankind has evolved. Great book by the way.
Every business owner’s dream is to have clients that pay delinquent invoices on time. However, this is not always the case, as late payments are still common in numerous businesses, including industries like Construction, Engineering and Aged Care. Longer payment terms in their industry should not deter business owners because there are numerous ways to protect themselves from non-payment.
A director’s guarantee is one such debt collection tactic, which permits you to pursue the director if your customer is unable to pay their due commitments. Director’s guarantees are commonly used in Debt Recovery and are something Taylor Ryan allows recommends including in Terms and Conditions, particularly those that your client engages into on credit. When director’s guarantees are used correctly, they can help you get paid faster and if the company enters liquidation/administration, you have a whole other legal avenue to pursue. The alternative is to write the debt off.
How does a Directors Personal Guarantee work?
A corporation is a legal body capable of contracting. When a customer fails to pay for items that you have already provided, the law authorizes you to sue only that company. The so-called “corporate veil” protects your customer’s directors from those obligations.
However, in some cases, you can pierce the corporate veil and go for your customer’s director(s). When a director signs a director’s guarantee, it is one of those circumstances where the corporate veil can be pierced.
It is always a good idea to complete a Company Search to ensure:
- The person signing is actually the Company Director and;
- Ensure all Directors give their guarantee.
Conclusion:
You need a Directors Personal Guarantee to be able to chase the Director personally for an overdue debt. There are some exceptions listed here on the ODCE Website. If your existing contracts with a director’s guarantee aren’t assisting you in collecting unpaid debts, it’s time to assess the terms and circumstances of those contracts to see if they need to be updated or amended. The director’s guarantee, like any contract, should be drafted in clear language, and any revisions should ideally be examined by commercial lawyers. If you have any questions on this, feel free to contact Liam on 085-1875571 or email us.