Personal Guarantees

If you are visiting this page it may mean that you are already under pressure by creditors to repay money that should have been paid by your business and if this is the case you need to act fast.

A Personal Guarantee is effectively a promise by an individual to pay a debt for another person in the event they do not honour any contractual payments. This is more common than you may think. For instance any joint account (e.g personal loan, mortgage etc..) is a kind of a personal guarantee because both people are are joint and severally liable and although strictly speaking it is not a personal guarantee it means that the creditor can go after either party should default occur. There are even loans out there now called Guarantor Loans which is when the applicant does not necessarily have a good credit rating and therefore the lender requires a guarantor to be party to the contract in order to support the applicant so funds may be released.

In business a Personal Guarantee is normally requested for loans or credit lines with suppliers and this usually means that the director has promised to personally pay the company's debts should the company fail to do so. Only ever do this with extreme caution and it should always be avoided if possible. It's bad enough when you are losing your business but to lose your home also is catastrophic. In someway it is a lenders collateral to ensure that they have recourse against someone else if the company fails in its obligations.

Depending on the contract, it may be that the personal guarantee is not legally enforceable so we would always suggest you get professional advice. Do not ignore claims from creditors as your assets could be at risk. Again, depending on the contractual terms, once the agreement is breached the creditor may pursue the director immediately without even chasing the company first. Most times this does not happen and usually an opportunity is given to remedy the breach but not always.

For help on this and other matters please feel free to contact us.