Personal Guarantees in Insolvency
What is a Personal Guarantee (PG)?Many businesses at some point will need some sort of finance to start or continue the running of their business, when taking out finance some lenders and or suppliers require you to sign a Personal Guarantee (PG). This guarantee acts as security for them should anything happen to your business and it be unable to pay the outstanding debt. The PG will make you the director personally liable for any outstanding debt should the company become insolvent. Having a PG lowers a directors perceived risk level for lenders and therefore encourages lending at potentially better rates or terms.
How does a personal guarantee work in liquidation?The protection of what happens during a liquidation with regards to the company’s debts etc is not relevant when a Personal Guarantee is in place, in more legal terms it "pierces the corporate veil of protection". Once the company is closed down the PG still remains in place and the lender will pursue you the director personally rather than the company. During liquidation for example the lender will request repayment in full from the director for the company’s outstanding debt, this can then lead to further legal action such as a statutory demand and or county court / high court judgement leading to enforcement with bailiffs or a charging order on the directors home.
Can I get out of a Personal Guarantee?No is the simple answer! Rarely it could be the case that the director didn’t realise what they were signing or the wording wasn’t legally correct in the PG but that is very hard to prove. A more viable option to stop the enforcement of the PG would be to speak to the lender to renegotiate the contract with new terms and an agreement to pay it all off over an agreed period of time.
If you have been asked to sign a PG, it’s always best practice to seek independent legal advice first, even though business may seem booming at the time things can change in an instant. Equally at the first signs of financial destress for your business seek advice from an insolvency practitioner who may be able to offer restructuring advice to avoid liquidation and an outstanding PG.
If you need guidance with regards to personal guarantees call to speak to one of our specialists, on 020 8661 7878, the call is complimentary and confidential, alternatively email us at email@example.com