Personal Guarantees = Danger
A personal guarantee is a legally enforceable agreement that means if the company fails to pay its debt, the guarantor (usually the company director(s) becomes personally liable to repay the debt.
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What is a Personal Guarantee?
Very often a creditor will seek a personal guarantee from a company’s directors to secure the obligations of a company before they provide any credit accounts.
This means that that your personal assets will become available to pay the outstanding account if the company is unable to meet its obligation. The creditor can sue you for the company’s debt.
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 is to read and understand every document before signing it. Also, seek competent legal advice before signing any contracts or credit applications that require a personal guarantee.