Find out whether any limit applies to principal, additional charges and future liabilities. A credit limit on the business account may not answer that question.
Corporate Recovery Partners
01 / 06
The trading limit is being mistaken for a personal cap
A director reviews an old guarantee after the company’s supplier balance rises. The account once had a modest credit limit, but the guarantee contains broad wording and no obvious dollar cap. The director has been treating the original limit as maximum personal exposure. Before negotiating or making financial plans, that assumption needs to be checked.
Collect the original guarantee, credit application and later limit changes. Identify the borrower, creditor and accounts covered. Mark the clauses defining guaranteed money, indemnities and continuing obligations.
Do not rely on a salesperson’s statement that the account only started at a certain amount. Ask the lawyer to identify what legally limits exposure, if anything, in the signed documents.
Ask specifically about interest, enforcement costs, fees and other liabilities. The Queensland Law Society’s practice note highlights that limits may apply differently to components of a guarantee; the actual document requires review.
Request the creditor’s itemised calculation. A total described as within the limit may still contain amounts that need separate verification.
If the account remains active, discuss whether the creditor will accept a defined cap, narrower scope or alternative terms. Have the proposed variation drafted and reviewed before treating it as effective.
Ask how any change affects existing debt versus future purchases. A reduced trading limit does not necessarily achieve the personal release you intended.
Use the adviser’s explanation to review personal assets, cash capacity and other guarantees. Do not assume every guarantee can be called at a different convenient time.
Keep the final documents in a guarantee register and review changes in the business account. If a demand has already arrived, protect the response timetable while the amount and scope are assessed.
