If you signed a personal guarantee — and on a restaurant lease, a bank loan or equipment finance, you almost certainly did — then yes, your personal assets, potentially including the family home, can be pursued if the company can't pay. Limited liability protects the people behind a company in normal trading, but it does not cover a debt you have personally guaranteed.
That's the hard part. The reassuring part is that very little of this is automatic, and most of the protection comes from what you do before you sign and before the company is in trouble. This guide explains what a personal guarantee really exposes, when a family trust helps and when it doesn't, what bankruptcy actually does, and the practical levers to ring-fence yourself. It's general information for owners, not legal advice — for your own situation, talk to an insolvency practitioner or lawyer.
Key takeaways
- A personal guarantee makes you personally liable for the company's debt if the company can't pay it (Rainey Collins, 2025). Limited liability does not protect you on a debt you've guaranteed.
- Normally your personal assets are safe. Outside a guarantee, "your personal assets (such as your home and personal bank accounts) are not at risk for satisfying the company's debts" (McDonald Vague, 2025).
- A guarantee must be in writing and signed to be enforceable, under section 27 of the Property Law Act 2007 (New Zealand Legislation, 2007). If you signed one, it counts.
- Liability can balloon. Guarantees "commonly extend to enforcement costs, interest and legal fees," so what you owe can grow fast once the debt is called in (Blackwood Montagna, 2025).
- A family trust is not automatic protection. A bank that lent against a trust-owned home can require the trust itself to guarantee the debt (Rainey Collins, 2025).
- Bankruptcy usually lasts three years from when the Official Assignee receives your Statement of Affairs, and a creditor can apply to bankrupt you over a debt of more than $1,000 (Insolvency and Trustee Service, 2026).
- The backdrop is real. Hospitality liquidations were up 49% year-on-year in 2026, and more than 130,000 New Zealanders now hold a mortgage over $1 million (RNZ, 2026).
Can you lose your house if your New Zealand restaurant fails?
Yes — but only because of a personal guarantee, not because the company failed. If your restaurant trades through a limited liability company and you never signed a guarantee, the company's creditors can only chase the company's assets. The whole point of a company is that it sits between your business and your personal life.
The problem is that almost no independent restaurant gets to keep that wall intact. Landlords, banks, equipment financiers and trade-credit suppliers routinely ask the director to sign a personal guarantee before they'll deal with a small company. The moment you sign, you've agreed to pay that debt personally if the company can't — and your house is one of the assets a creditor can ultimately pursue to recover it.
This matters more in 2026 than it has in years. Centrix data reported by RNZ (2026) showed hospitality liquidations up 49% year-on-year, at a time when more than 130,000 New Zealanders are carrying mortgages over $1 million. More owners are facing the question, and more of them have a lot of equity on the line.
What is a personal guarantee, exactly?
A personal guarantee is a written promise that you, as an individual, will pay a company's debt if the company doesn't. As Rainey Collins puts it, "when a person gives a personal guarantee, they confirm in writing that they will be liable for paying someone else's debt, if that person cannot" (Rainey Collins, 2025).
It has to be in writing to be enforceable. Section 27 of the Property Law Act 2007 — headed "Contracts of guarantee must be in writing" — requires a contract of guarantee to be in writing and signed by the guarantor (New Zealand Legislation, 2007; Hesketh Henry, 2024). That cuts both ways: a verbal "I'll stand behind it" generally won't bind you, but a clause you initialled in a lease three years ago absolutely will.
Most owners don't remember signing one. It's usually a single paragraph inside a bigger document, not a separate form labelled "personal guarantee."
Where personal guarantees hide
If you've ever wondered whether you signed one, assume yes and go looking. Guarantees are buried in the everyday paperwork of running a restaurant, not presented as a standalone decision.
The four usual places:
- The premises lease. The most common and often the largest. A landlord leasing to a small company will frequently require the director to personally guarantee the rent and make-good obligations for the full term — one of the clauses to scrutinise in our checklist for what to check before you sign a NZ restaurant lease.
- Bank loans and overdrafts. Business lending to an owner-operated company almost always comes with a director's guarantee, and often a mortgage or security over personal property as well.
- Equipment finance. The cooktop, the coolroom, the POS, the coffee machine — financed kit usually carries a personal guarantee from the director.
- Trade-credit accounts. Even the wholesaler and the linen supplier may have a guarantee clause in the account application you signed when you opened the account.
Add them up and the guaranteed exposure across a single restaurant can run well beyond what the owner ever consciously agreed to.
What's actually at risk — and why limited liability doesn't help
Outside a guarantee, the company structure does its job. As McDonald Vague explains, directors and shareholders are "generally protected by limited liability," meaning "your personal assets (such as your home and personal bank accounts) are not at risk for satisfying the company's debts" (McDonald Vague, 2025).
A guarantee is the exception that swallows the rule. The same firm notes that where you've signed one, "those specific debts may fall to you personally if the company fails to meet them," and "unpaid creditors will likely call on you personally for amounts the company cannot pay under guarantees given" (McDonald Vague, 2025).
So when the company is liquidated, the guaranteed creditors don't simply write off what the company couldn't pay — they turn to you. Your savings, your vehicle and the equity in your home are all potentially in scope. Blackwood Montagna puts the stakes plainly: "when a business owner signs a guarantee, they put their personal assets, their home and their financial future on the line" (Blackwood Montagna, 2025).
And the number rarely stays still. Guarantees "commonly extend to enforcement costs, interest and legal fees," which means "the liability can increase quickly once the debt is called in" (Blackwood Montagna, 2025). A six-figure lease guarantee can become a larger personal debt by the time it's enforced.
Does a family trust protect the family home?
Sometimes — but a trust is not the automatic shield many owners assume. If the home is genuinely owned by a trust, and you have not exposed it, it can sit beyond the reach of your personal creditors. The catch is in the conditions.
Two things commonly undo it. First, the bank that lent money against a trust-owned home will usually require the trust itself to guarantee the debt — and then the trust's assets, including the home, are exposed too. Rainey Collins describes exactly this: a bank "requested a guarantee from the trustees of that family trust," and when the borrower defaulted, "the trust was forced to sell the home" (Rainey Collins, 2025).
Second, timing and clawback. The New Zealand Law Society warns that "there are several provisions in law that allow property in a trust to be clawed back in certain circumstances" (New Zealand Law Society, 2024). Transferring the house into a trust the week before things go wrong is not a strategy — it's a red flag. A trust set up properly, years in advance, with the home never offered as security, is the version that actually helps. Get this checked by a lawyer; the details decide everything.
What bankruptcy actually does to you
If a guaranteed debt is enforced and you can't pay it, bankruptcy is the end of the road — but it's worth understanding rather than fearing. A creditor can apply to bankrupt you if you owe more than $1,000, and bankruptcy "usually lasts 3 years from the time we receive your Statement of Affairs" (Insolvency and Trustee Service, 2026). Your details then stay on the public Insolvency Register for four years after you're discharged.
During bankruptcy, the Official Assignee takes control of most of your assets. Your house "is considered an asset in your bankruptcy, even if you're still paying off your mortgage," and if there's equity, the Official Assignee may sell it (Insolvency and Trustee Service, 2026). You can keep limited essentials — a vehicle under a set value, a small amount of savings, basic household furniture and the tools you need to earn.
It's serious, but it's also finite and rule-bound. Knowing the threshold and the timeline is the first step to staying out of it — or, if it's unavoidable, going in with advice rather than being dragged in.
Can you be personally liable without a guarantee?
Yes, in a narrower set of cases. Even without signing anything, a director can become personally liable by breaching their duties under the Companies Act 1993. As McDonald Vague summarises, "under the Companies Act 1993, directors have a duty not to allow the company to trade if it is insolvent... they can be held personally liable for the company's debts incurred during that period" (McDonald Vague, 2025).
In plain terms: if you keep ordering stock and racking up debts you know the company can't pay, you can lose the protection of the company entirely. This is one more reason to act early when the numbers turn — trading on in hope is the behaviour that exposes directors personally.
How to ring-fence yourself
You can't undo a guarantee you've already signed, but you can limit the next one and protect yourself in how you operate now. None of this is legal advice — it's the set of levers worth raising with your lawyer and accountant.
- Negotiate the guarantee before you sign. Blackwood Montagna's advice is direct: "ask whether the guarantee can be limited to a specific amount or a specific term" (Blackwood Montagna, 2025). A capped or time-limited guarantee is far better than an open-ended one.
- Read every account application and lease for the guarantee clause — and get legal eyes on the big ones, especially the lease, which is usually your largest single exposure.
- Keep personal and business money genuinely separate. Don't let the company's pressures quietly become personal borrowing.
- Get the trust right, early. If asset protection matters, set it up properly years ahead with a lawyer — not as a panic move.
- Act the moment the company is in doubt. Engaging an insolvency practitioner early keeps the quieter, cheaper options open and reduces personal risk — the same principle as dealing with GST and PAYE tax debt before IRD acts. Silence is what closes the doors.
Most of what pushes owners toward this point is the slow grind of fixed costs — rent, the rising MPI food-safety levy, wages and public-holiday pay, and delivery commissions. Keeping more of each sale on channels you control — your own ordering page rather than a 30%-commission app, which is one of the things a tool like DineHere is built to do — is a small lever on the same problem: the healthier the company, the less likely the guarantee is ever called in. The structure protects you; the cashflow keeps you from ever testing it.
Frequently asked questions
Can the bank really take my house if my restaurant fails?
If you signed a personal guarantee secured against or able to reach your home, yes — the lender can pursue the home's equity to recover the guaranteed debt. Without a guarantee, the company's creditors generally can't touch your personal home (McDonald Vague, 2025).
What is a personal guarantee?
A written promise by an individual to pay a company's debt if the company can't (Rainey Collins, 2025). To be enforceable it must be in writing and signed, under section 27 of the Property Law Act 2007 (New Zealand Legislation, 2007).
How do I know if I signed one?
Check your premises lease, any bank loan or overdraft, equipment finance agreements and trade-credit account applications. Guarantees are usually a clause inside those documents, not a separate form, so assume you have one until you've checked.
Does putting my home in a family trust protect it?
Not automatically. If the bank lent against a trust-owned home it will likely require the trust to guarantee the debt, exposing the home anyway, and recent transfers can be clawed back (Rainey Collins, 2025; New Zealand Law Society, 2024). A properly structured trust set up well in advance is the version that helps.
How much can a guarantee end up costing me?
More than the original debt. Guarantees commonly extend to enforcement costs, interest and legal fees, so the liability can grow quickly once it's called in (Blackwood Montagna, 2025).
Can a creditor bankrupt me over a guarantee?
Yes. A creditor can apply to the court to make you bankrupt if you owe more than $1,000 and can't pay (Insolvency and Trustee Service, 2026).
How long does bankruptcy last in New Zealand?
Usually three years from when the Official Assignee receives your Statement of Affairs, after which you're discharged; your details remain on the public Insolvency Register for a further four years (Insolvency and Trustee Service, 2026).
What happens to my house if I'm bankrupted?
It's treated as an asset of the bankruptcy even if it's still mortgaged, and the Official Assignee can sell it where there's equity to recover for creditors (Insolvency and Trustee Service, 2026).
Can I be personally liable even without a guarantee?
Yes, if you breach your director's duties — for example by letting the company keep trading and incurring debts while it's insolvent, you can be held personally liable for those debts under the Companies Act 1993 (McDonald Vague, 2025).
What should I do right now if I'm worried?
Find out what you've guaranteed, talk to an insolvency practitioner or lawyer early, and deal with pressing debts before they escalate. Acting early — including on tax debt before IRD acts — keeps the most options open and limits your personal exposure. This article is general information, not legal advice; get advice for your own situation.
