A personal guarantee is a separate promise from you, not the Company.
Liquidation does not make it disappear.
This is usually the concern that keeps Directors awake. The position is often more manageable than it first appears, but only once you know exactly what you have signed.
Find out what you're liable for before someone tells you.
4 THINGS EVERY DIRECTOR SHOULD UNDERSTAND
A personal guarantee generally comes into play when the Company cannot pay the debt to the lender.
If such a guarantee "crystallises" this becomes a matter for you personally and sits outside of the Company's insolvent estate. Unless there is a dividend to unsecured creditors, you will not recover any of those monies you pay under the guarantee.
This is the part Directors most often get wrong.
Personal guarantees are often hastily agreed and entered into but forgotten until there is a problem with, say, an overdraft, lease, asset finance or in some cases ordinary supplier credit accounts, often signed many years ago.
Wording matters. Some cover a single debt. Others cover everything the Company ever owes that lender.
Most Directors have signed more than they remember.
Lenders were not permitted to take personal guarantees for Bounce Back Loans.
Other Covid lending followed different rules, so the protection depends on which scheme you used.
Many Directors worry about this unnecessarily.
Lenders will often discuss settlement, particularly where a Director engages early and is open about their position.
Guarantees can also occasionally be challenged, depending on how they were signed and explained.
Silence is the one approach that never helps.
A GUARANTEE IS RARELY THE WHOLE STORY.
Knowing precisely what you have signed, and what you have not, is the first step to dealing with it.
Start by finding out. Many Directors are unsure what they signed, or when.
Not every debt carries a guarantee, and not every guarantee is unlimited.
What matters is establishing the true position before a lender contacts you.
Don't assume liquidation clears it
A personal guarantee can become your debt if the Company cannot pay.
Don't ignore a demand letter
Early engagement is where settlements come from.
Don't sign anything new to buy time
Fresh guarantees or security can widen your exposure.
Don't move personal assets around
Transfers made under pressure are frequently reversed.
Don't rely on memory
Get the actual documents. Terms vary enormously.
A confidential discussion today could help protect you tomorrow.
Tell us the basics and we'll call you back — free, confidential, no obligation.
THIS WEBSITE PROVIDES GENERAL INFORMATION AND DOES NOT CONSTITUTE LEGAL OR INSOLVENCY ADVICE. Your position depends on the individual circumstances of each Company and Director. You should obtain advice from an appropriately qualified professional, including a licensed insolvency practitioner where appropriate.
