Personal Guarantees by Directors
If you have given one of your creditors a personal guarantee, you can not simply get out of them. The only way to remove a personal guarantee is by negotiating with the lender for them to remove it, negotiating on payment terms, paying it, or going bankrupt.
Many lenders (and perhaps some suppliers) may ask for a personal guarantee from you as a director of the company. This means that if the company defaults on the terms of the agreement they can chase you personally for the debt.
If you have signed a personal guarantee you should seek advice from an Insolvency Practitioner, who may also seek the opinion of a solicitor regarding the terms of the contract.
If the company defaults on a debt, and the personal guarantee is called upon then the steps the creditor may take depend on the amount of the debt.
1. Firstly, they will issue you with a statutory demand – allowing you 21 days to settle the debt, after this time they will then start bankruptcy proceedings against you (if the debt is over £5,000).
2. After this 21 days they can then apply for a County Court Judgement against you – find out more about CCJs here.
If a personal guarantee is called upon, we suggest ensuring that the validity of the contract is questioned, and that it has been executed correctly.
It’s then important to discuss the debt with the creditor, to begin discussing terms of repayment – they want to ensure you pay the debt therefore it’s in their interest as well as yours to settle the debt. Personal guarantees are extremely complex areas – seeking professional advice before signing them is highly recommended.