In many cases, a creditor will seek a personal guarantee from a company’s directors to secure the obligations of a company before they are prepared to provide any credit accounts.
A personal guarantee is a legally enforceable agreement that means if the company who entered into a contract fails to pay its debt, the guarantor (usually the company director(s) or any person who signed the guarantee) then becomes personally liable to repay the debt.
And personal liability means that your assets will become available to pay the outstanding account if the company is unable to meet its obligation. How will the creditor enforce the guarantee?
The most common types of personal guarantees are to secure debts for;
- Trade supply accounts
- Company credit cards
- Hire Purchase or Leasing contracts
Often, directors are unsure as to whether they have signed a personal guarantee and it is only when a company is heading towards insolvency that these types of issues assume greater significance to the directors.
The best advice here is to always read and understand every document before signing and to seek competent legal advice before signing any contracts or applications that require a personal guarantee.