- When directors secure business borrowing, lease agreements, or supplier contracts, it is not uncommon for lenders or landlords to request a personal guarantee (PG) as a condition of the agreement. While this can facilitate access to essential funding, it also carries personal financial risks if the company later becomes insolvent.
What is a Personal Guarantee?
A personal guarantee is a legally binding commitment made by a director to personally cover a company’s debts if it is unable to meet its obligations. This provides lenders with additional security, reducing their risk and encouraging business lending. While personal guarantees often sit in the background unnoticed when a company is trading well, they become highly significant if cash flow issues arise and insolvency becomes unavoidable.
How Does Liquidation Affect Personal Guarantee?
If a company is placed into liquidation, any outstanding personal guarantees become immediately enforceable. The lender or creditor will typically demand full repayment from the individual(s) who signed the guarantee. If multiple directors have co-signed, liability may fall jointly and severally, meaning any one director could be pursued for the entire amount if others are unable to pay.
For many directors, business insolvency is accompanied by personal financial strain, making immediate repayment difficult. In such cases, creditors may seek court action to recover their money, and secured guarantees—such as those tied to a family home or other assets—could lead to enforcement measures, including a Charging Order or forced sale.What Are Your Options If a Personal Guarantee Is Called In
While personal guarantees are legally robust, there may be ways to mitigate their
impact:- Negotiation with Creditors – In some cases, lenders may be open to a structured repayment plan rather than immediate legal action.
- Legal Review of the Guarantee – If the terms of the PG have changed without notification or contain legal flaws, there may be grounds to challenge enforcement.
- Personal Insolvency Solutions – If repayment is not viable, options such as an Individual Voluntary Arrangement (IVA) or bankruptcy may provide a structured way to address liabilities while protecting key assets where possible.
How Coots & Boots Can Help
At Coots & Boots, we understand the stress and uncertainty that personal guarantees can create for directors, particularly during insolvency. Our experienced team will assess your situation, explain your level of liability, and explore potential strategies to minimise personal financial risk.
If your company is entering liquidation and you have outstanding personal guarantees, it is essential to seek professional guidance at an early stage. Contact us today for a confidential consultation, and we will help you navigate the best course of action.