PETALING JAYA: With the increasing number of bankruptcies involving corporate guarantors, separating personal assets from business liabilities has become important, say experts.
Only proper financial structuring can help shield entrepreneurs from financial ruin, they say.
The risks faced by business owners today have become increasingly complex and global, said Chartered Financial Consultant Lee Khee Chuan.
He pointed out that external shocks, such as economic crises and shifting geopolitical landscapes, are difficult to manage at the small and medium enterprise (SME) level.
Bankruptcies involving corporate guarantors have nearly quadrupled in the last few years, rising from 118 cases in 2021 to 561 in 2025, according to the Insolvency Department.
“Business is inherently risky, but the level of uncertainty today is significantly higher.
“External shocks such as economic crises, geopolitical conflicts and global events like the Covid-19 pandemic are difficult to predict and even harder to manage at SME level.
“This means that risks are no longer just internal or industry-specific. They are increasingly global and systemic. This makes it even more critical to have proper financial structures in place to withstand shocks,” he said yesterday.
Many entrepreneurs, Lee said, underestimate the implications of personal guarantees, often treating them as routine documentation rather than legally binding commitments that can lead to problems.
“This lack of awareness often leads to an assumption that liability remains solely at the corporate level. But once the business defaults, the bank is entitled to pursue the individual,” he warned.
Lee, who has been advising SMEs for 25 years, said he has observed a persistent failure to create a clear separation between business risk and personal wealth.
“When the business faces distress, personal assets are immediately exposed. And it becomes a personal financial crisis,” he said.
Award-winning financial planner Dr Selina Dang echoed the concerns, saying that business risk is increasingly spilling over into the personal lives of directors and their families.
She said many are caught off guard because they operate in “survival mode”, focusing on immediate cash flow rather than long-term legal consequences.
“When a business owner signs a personal guarantee, they are effectively linking business debt to personal consequences,” she said.
“The line between ‘my company’s problem’ and ‘my personal problem’ can disappear very quickly.
“My key message is simple: never sign a personal guarantee casually. Treat it as a personal financial decision, not just a business financing step.
“Before signing, ask yourself: If the business cannot repay, what exactly is at risk? How many months of pressure can I absorb? What happens to my home, savings, family cash flow and future earning capacity?”
Danny Wong, chief executive officer of Areca Capital Sdn Bhd, said the surge in bankruptcies is due to growing financial stress within the SME sector.
He said many borrowers lacked proper guidance and believed that personal guarantees are mere formalities.
An over-reliance on borrowing to service existing debt often worsens the situation, he said, adding that stronger financial literacy and advisory support could help SMEs better navigate funding decisions and reduce risks.
