Personal guarantees that remain after an M&A or business succession

1. Where it emerges that a guarantee is still in place

The company has been sold and the owner-manager has resigned as representative director, and yet a notice arrives from the financial institution demanding repayment or performance of the guarantee obligation. This is one of the ways in which the problem comes to the surface after a business succession or an M&A transaction. By the time the notice arrives, the benefit of the time allowed for payment may already have been lost, and the time available to respond may be limited.

The first thing to check is what the guarantee covers. We check how the scope of the obligations guaranteed is defined in the guarantee contract: whether it is confined to particular obligations, or extends to all the obligations arising from a continuing course of dealing; and whether a maximum amount or a period is provided for. There is not necessarily only one guarantee. Separate guarantees may have been given to several financial institutions, to a credit guarantee corporation, to leasing companies and to business counterparties. Where security has been granted over the family home or other real property, the registration is checked as well.

The validity of the guarantee contract itself is also checked. A contract under which an individual guarantees unspecified obligations falling within a certain range does not take effect unless a maximum amount for the guarantee is provided for. In addition, where an individual guarantees borrowing for the purposes of a business, a procedure may be required by which that individual declares the intention to guarantee in a notarial instrument drawn up within one month before the day on which the contract is made. Except where a statutory exception applies, such as where the individual was a director of the borrowing company at the time of the contract, a guarantee contract made without that procedure does not take effect. The position of a spouse or other relative is checked in the same way. In each case, whether these rules apply depends on when the contract was made.

Next come the arrangements agreed on the M&A or the succession. We check what the share transfer agreement or the agreement on the business succession provides about release from the guarantee. Alongside that, we check the exchanges during the negotiations, any record of meetings with the financial institution, and whether a memorandum was drawn up. Where nothing survives beyond an oral explanation, what can be said to have been promised, and how far, may itself be in dispute.

Where a demand has been received from the financial institution, then separately from release, we also check whether the guarantee obligation demanded is owed and how far it extends. The grounds that can be raised against the demand are considered in the light of when the contract was made or varied, what the guarantee covers, the outstanding balance and due date of the principal obligation, and whether the required notices have been given. Where the prescription period for the principal obligation has run its course, the guarantor may in some circumstances invoke it, so the date of the last repayment is checked as well. Where the guarantee was given at the company's request, one option is to ask the financial institution to provide information on the performance of the principal obligation. Failing to obtain release from the guarantee, and having to pay the amount demanded as it stands, are separate questions.

The present position also needs to be established. The available options differ according to whether the company has fallen behind with repayments or the guarantee has simply been left in place without being released. Where payment has already been made, we check who made it. Where the former owner-manager paid as guarantor, and where a credit guarantee corporation paid the financial institution, differ as to who may then claim what, and from whom. In the latter case, the question is whether the former owner-manager has guaranteed the reimbursement obligation that the company owes to the corporation. Where the company has entered rehabilitation or other insolvency proceedings, the relationship with those proceedings is checked as well.

2. The guarantee relationship with the financial institution and the buyer's promise

The most important thing here is to keep two relationships apart. One is the guarantee contract between the former owner-manager and the financial institution. The other is the promise between the former owner-manager and the buyer or another party that the guarantee will be brought to an end, or that the burden will be taken over.

A guarantee contract is a contract between the financial institution and the guarantor. It does not cease to have effect as a matter of course because the guarantor has resigned as representative director, because the shares have been transferred, or because the seller and the buyer have agreed on release. Nor does a duty arise as a matter of course on the part of the financial institution to substitute another guarantor or to release the guarantee. It is not accurate to think that the guarantee passes with the company simply because the company has been sold.

Accordingly, the responsibility that the former owner-manager owes to the financial institution remains, as a general rule, until an agreement releasing the guarantee is reached with the financial institution, or another arrangement is made, such as an assumption of the obligation that releases the former owner-manager. Even where the buyer does not cooperate in obtaining release, it is usually difficult, as against the financial institution, to refuse payment by relying on the agreement with the buyer.

The promise given by the buyer or another party, on the other hand, provides the basis on which the former owner-manager may assert rights against the buyer. What has to be established first is whether such a promise was in fact given. A buyer does not come under an obligation in relation to release from the guarantee merely by having taken over the shares and the running of the company. Cases where the agreement contains a provision, cases where it does not but a separate agreement is said to have been reached, and cases where there was no promise at all, each need to be considered separately.

Even where the agreement contains a provision, its content varies greatly with the wording. What can be claimed differs according to whether the provision goes no further than cooperating, or using efforts, towards release; whether it is a promise to bring release about by a given date; or whether it is a promise to indemnify the former owner-manager for the amounts borne if release is not obtained. Whether the provision also deals with what is to happen if release is not achieved is, in practice, the dividing line.

Whether to complete the transaction with the guarantee still in place may itself be negotiated as a term of the deal. Where release from the guarantee was made a condition precedent to completion, see the guide on termination of an M&A contract and refusal to close.

3. Discussions towards release from the guarantee

Release from a guarantee requires discussions with the financial institution. The matters considered in those discussions include the company's financial position, the extent to which the assets and accounts of the company are separated from those of the owner-manager, the record of repayment, the creditworthiness of the successor or the buyer, and whether security has been provided. Whether the financial institution decides that the guarantee is no longer needed depends on these circumstances.

In this field, the Guidelines for Personal Guarantee Provided by Business Owners have been drawn up as a voluntary set of rules between financial institutions and small and medium-sized enterprises. Special rules focusing on business succession have also been adopted. They state, among other things, that guarantees should as a general rule not be taken from both the former owner-manager and the successor in respect of the same claim, that whether to ask the successor for a guarantee should be considered carefully, and that release of the former owner-manager's guarantee should be considered appropriately.

These are not legislation, however. They are standards that financial institutions are expected to respect and observe voluntarily. The existence of the guidelines and of the special rules does not mean that release from a guarantee can be claimed from a financial institution as of right. In practice, the discussions proceed by reference to the factors the guidelines set out, with the company showing what improvements it is able to make.

As to how the discussions are conducted, the starting point is to set out and explain the company's financial statements and its cash-flow outlook, the extent to which the assets of the company and of the individual are separated, and the degree of involvement of the successor or the buyer. Where a loan carries a guarantee from a credit guarantee corporation, where several financial institutions are involved, or where there are guarantees relating to leases or to trading terms, each has to be negotiated separately. Depending on the company's situation, it may be more realistic to extinguish the guaranteed obligation itself by refinancing than to seek release from the guarantee.

4. Reimbursement and contractual indemnification after payment under the guarantee

Where the former owner-manager has actually paid the guarantee obligation, one option is to claim reimbursement of the amount paid from the company as the principal obligor. A guarantor who gave the guarantee at the company's request is entitled to reimbursement of the value of the property expended; where that value exceeds the amount of the principal obligation extinguished by the payment, however, the amount extinguished is the upper limit. The amount expended is therefore not necessarily the amount that can be reclaimed. That said, this is a limit on the principal element of the right of reimbursement, and where the requirements are met, statutory interest, costs that could not be avoided and other losses may also fall within the scope of reimbursement. It does not set an absolute ceiling on the total amount that can be claimed. In addition, having made payment, the guarantor may in some circumstances exercise the rights that the financial institution held. The extent to which those rights may be exercised is likewise limited to the extent of the right of reimbursement.

Notice to the company before and after payment is also a matter to check, because of its effect on reimbursement. Where a guarantor who gave the guarantee at the company's request makes payment without giving prior notice, the company may raise against the claim for reimbursement the grounds that it could have raised against the financial institution. Separate provision is made for a failure to give notice after payment, so prior notice and subsequent notice are checked separately.

Even before payment has been made, a guarantor who meets certain requirements is entitled to exercise the right of reimbursement in advance. Agreements sometimes provide that indemnification may be received before the guarantee obligation is performed, or that security may be required, so there is no need to proceed on the basis that nothing can be done until payment has been completed.

Where, however, the guarantee was called on because the company was unable to repay, exercising the right of reimbursement may not lead to actual recovery. Where recovery from the company is unlikely, a contractual claim against the buyer or another party is considered alongside it. We check whether the agreement contains provisions on indemnification where release is not obtained, or on bearing the amounts paid by the former owner-manager, and, where it does, whether their requirements are met. The existence of a right of reimbursement against the company does not mean that only the balance after deducting its nominal amount can be claimed. The adjustment is made by reference to how much can actually be recovered, so as to avoid double recovery.

Where the agreement contains no provision, or its wording is general, the question is how the promise is to be assessed. If it is assessed as going no further than using efforts towards release, it is difficult to establish responsibility from the fact that release was not obtained; the question then becomes whether release would have been arrived at had the matter been handled properly. If, on the other hand, it can be assessed as a promise to obtain release by a set date, there is room to claim damages for the failure to perform it. Which assessment applies depends on the wording of the agreement, the course of the negotiations, and the circumstances the parties assumed.

Where rehabilitation or liquidation proceedings for the company are under way, the treatment of the right of reimbursement, and the resolution of the guarantor's own debts, also need to be considered. A point to note here is that a reduction or discharge of the company's debts under a rehabilitation plan does not reduce the guarantor's liability in the same way. Methods based on the guidelines are also used in resolving guarantee obligations.

5. Where the promise is not performed

Where the buyer does not take the steps towards release from the guarantee, the first step is to send a notice requiring performance, based on the obligations the buyer has under the agreement. What matters here is to identify in concrete terms the act required of the buyer. What should be required differs according to whether it is to apply to the financial institution for release, to submit the necessary materials, or to carry out a refinancing. A demand simply to release the guarantee leaves it unsettled what the buyer has to do in order to have performed the obligation.

For an obligation with no fixed time for performance, requiring performance puts the obligor in a position where responsibility for delay can be asserted. This is separate from the procedure of demanding performance within a reasonable period in order to terminate a contract, so the notice is sent with its purpose in mind. Exchanges are kept in writing, in a form that shows the course of the discussions with the financial institution and what the buyer was asked to do.

If performance still does not follow, an action requiring performance, or an action for damages, may be considered. Obtaining a judgment against the buyer does not, however, extinguish the guarantee relationship with the financial institution. A decision requiring the buyer to do something, and bringing the guarantee with the financial institution to an end, have to be pursued as separate matters.

The loss may consist of the amount of the guarantee obligation actually paid and, where assets provided as security have been lost, the loss arising from that. Where no demand has yet been received, the options considered include not only asserting the future burden as loss, but also the reimbursement in advance described in the previous chapter and any contractual provisions on advance indemnification or the provision of security.

Where part of the purchase price is unpaid, claiming that payment alongside the claim relating to the guarantee may be considered. Both are claims by the former owner-manager against the buyer, so they are not in a relationship in which they can be set off against each other. Where the buyer asserts a set-off or withholds payment, the content of the claim that the buyer says it has against the former owner-manager, and its contractual basis, are checked separately.

The passage of time is also a consideration. The options are limited if matters are only taken in hand once performance of the guarantee obligation has been demanded. We recommend considering the approach at an early stage — when signs of a change in the company's repayment position appear, or when it becomes clear that the buyer is not taking the steps towards release.

Where this needs to be considered together with the ownership of the shares or with sorting out the succession, see the guide on disputes over who owns the shares, including shares held in another person's name.

How we assist

We act for former owner-managers whose personal guarantee remains in place, and for those who have received a demand under one. On release from an owner-manager's guarantee and on claims for reimbursement, we check the relevant materials and the sequence of events, and assist with considering the rights and obligations arising under the agreements and the applicable legislation and the approach to be taken. To the extent instructed, we conduct negotiations with the other party, act in court and other proceedings, and work with other professionals where needed. When you contact us, please let us know, so far as you are able, the current situation, whether any notice has been received from the other party, and any deadlines you are aware of. You are welcome to contact us before the documents have been gathered.

Whether we are able to accept instructions, and the scope of any assistance, are confirmed individually after checking for conflicts of interest and related matters.

Related pages

• Disputes over who owns the shares, including shares held in another person's name — investigating the position where the entries in the shareholder register and the actual rights differ, the procedures relating to the register and to share certificates, and negotiations and litigation.

• Termination of an M&A contract and refusal to close — the matters to consider where completion or termination of the transaction is disputed on the ground that a condition precedent has not been satisfied or that the agreement has been breached.

• M&A and business succession (practice area) — planning M&A structures, legal due diligence, drafting and negotiating agreements, support at completion, post-merger integration, and business succession.

Key legislation and official sources

English translations of legislation are provided for reference. The Japanese texts are authoritative.

Where it appears	Legislation	Source type
Maximum amount required for a guarantee of unspecified obligations given by an individual; declaration of the intention to guarantee in a notarial instrument and the exceptions to it	Civil Code（民法）	Japanese legislation
Invoking the completion of prescription by a guarantor; provision of information on the performance of the principal obligation to a guarantor who gave the guarantee at the principal obligor's request	Civil Code（民法）	Japanese legislation
Assumption of an obligation that releases the original obligor	Civil Code（民法）	Japanese legislation
Right of reimbursement of a guarantor who gave the guarantee at the principal obligor's request and its upper limit; statutory interest and unavoidable costs; notice before and after payment; reimbursement in advance; subrogation by performance and its extent	Civil Code（民法）	Japanese legislation
Time for performance of an obligation with no fixed time, and responsibility for delay; demand for performance within a reasonable period before termination; requirements for set-off	Civil Code（民法）	Japanese legislation
Effect of a rehabilitation plan on rights against a guarantor	Civil Rehabilitation Act（民事再生法）	Japanese legislation
Discussions towards release from the guarantee; guarantees not to be taken from both the former owner-manager and the successor for the same claim	Guidelines for Personal Guarantee Provided by Business Owners（経営者保証に関するガイドライン）	Official guidance

Legal information reviewed: 2026-09-18

Frequently asked questions

Contact

Where an owner-manager's guarantee remains, or a demand has been received

On release from an owner-manager's guarantee and on claims for reimbursement, we check the relevant materials and the sequence of events, and assist with considering the rights and obligations arising under the agreements and the applicable legislation and the approach to be taken. To the extent instructed, we conduct negotiations with the other party, act in court and other proceedings, and work with other professionals where needed. When you contact us, please let us know through the inquiry form, so far as you are able, the current situation, whether any notice has been received from the other party, and any deadlines you are aware of. You are welcome to contact us before the documents have been gathered.

Contact us about an owner-manager's guarantee

Whether we are able to act, and the scope of our work, are confirmed individually after a conflict check.

Related Pages

Related Pages

Disputes over who owns the shares, including shares held in another person’s name

A legal guide to cases where the entries in the register of shareholders do not match the rights as they actually stand, covering how this is investigated, the procedures relating to the register and to share certificates, and the handling of negotiations and litigation.

Termination of an M&A contract and refusal to close

A legal guide to what falls to be considered where completion of the transaction, or termination of the contract, is in dispute on the ground that a condition precedent has not been satisfied or that the contract has been breached.

M&A and business succession (practice area)

An overview of our work on structuring M&A transactions, legal due diligence, the preparation and negotiation of contracts, support at closing, post-merger integration, and business succession.

This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.