Help for directors with personal guarantees

What do I do if I have a personal guarantee and my business goes into Liquidation ?

Personal guarantees relate to directors fulfilling the financial obligations of a company if the company cannot.  If a company is unable to pay its debts then the director who has given the personal guarantee is liable to pay them.

Directors are not personally liable for a company’s debts by virtue of their appointment, however, if you have guaranteed a company’s ability to repay a loan, overdraft or lease agreement personal liability will be incurred.  In the worst case scenario this could result in personal financial difficulties following the demise of a Company.  Most banking institutions will seek to lend a small business money, supported initially by a debenture which effectively grants them security over all of the assets of the business not granted as security elsewhere. They will then seek further security by way of a guarantee from the individual directors. We are here to help you manage this situation.

What is an Unsecured Personal Guarantee?

Many small business owners sign a personal guarantee to secure finance.  A personal guarantee is a written promise from a business owner guaranteeing payments in the event that the business cannot pay.  If it is an unsecured guarantee it will not be tied to a specific asset, however in the event of non-payment they will be treated the same as other general creditors, i.e. you should not seek to prefer them above other creditors.  The lender may declare that you are personally liable for lease or loan obligations of your business and may also declare that you are liable for default interest, legal and other fees etc.

What is a Secured Personal Guarantee?

In some cases a lender will require a specific asset to support the Guarantee of the Director.  This is usually  by way of a fixed charge over a Directors your home.  We have all seen or heard the following phrase “Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it”.  Well with a secured business loan on your property the lender can forcibly sell your house to get its money back if either you or the Company you cannot repay them.  This has repercussions for both your business and your personal life as you are probably:-

• Frightened you are going to lose your home because you signed a PG for your business.
• Worried because your partner does not know you have a PG on your home

Hopefully when you signed a PG you took independent legal advice and nowadays, most banks require that this is done.  But don’t worry, you are not alone, as we meet many company directors who have personal guarantees and first and second charges on their homes. We always adopt a proactive and pragmatic approach to managing this problem for you.

What will happen about my Personal Guarantee?

If a PG is called upon the creditor’s first priority would be to negotiate settlement terms.  If agreement cannot be reached then the creditor might well issue a statutory demand or apply for a County or High Court Judgment.  It is imperative at this point you do not attempt to bury your head in the sand; you must take action and seek advice.  It is always possible that you could  reach a negotiated settlement with the Creditor.

We aim to ensure that the matter does not go that far.  If possible we can look to save your business, most likely through informal agreements or a formal insolvency process called a  CVA or Creditors Voluntary Arrangement.  However, even if you are faced with the worse case scenario and your business is just not viable and needs to go into liquidation then, in most cases we can help you negotiate or come to a settlement with whoever holds your PG.

If you have a PG and are thinking your company could be saved by a CVA or you have decided to cut your losses and put your company into liquidation, please contact one of our Insolvency Practitioners at our offices in Croydon, Bournemouth and London and we will be able to advise you.  Of course all initial consultations are free of charge.

Please don't bury your head in the sand but call as soon as possible as the more time we have on our side the sooner we can start to put an effective solution together for you.

Jeremy Frost and Patrick Wadsted are Licensed Insolvency Practitioners and both are regulated by the IPA, the Insolvency Practitioners Association.  They are available to advise you about your personal guarantees either over the phone or on a one to one at our offices in Croydon, Bournemouth and London.  Telephone 0845 260 0101 for an immediate appointment.