Personal Guarantees Video

Hi and welcome to the Insolvency Experts, I’m Steven Kugel.Today I will briefly discuss Personal Guarantees.

As you know, if a company cannot pay its debts it is not the immediate personal problem of the director who is seen as another individual separate from the company at law.

In business however, some creditor require a personal guarantee from a company’s directors to secure the obligations of a company before they are prepared to provide any supply or service on credit.

This personal guarantee is a legally enforceable agreement that means that if the company fails to pay its debts, the guarantor – usually the company director will be personally liable to repay the debt.

If it happens that the company cannot pay, the director has exposed his personal assets to risk.

Of course, a director will never avoid a personal guarantee to banks, finance companies or other sophisticated lenders but they will be able to avoid the need to give a personal guarantee by shopping around such things as;

• Most service and supply accounts
• Property leases

Often, directors I speak to 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.

Clearly, the best advice here is that every director should always read and understand every document before signing and to remember the following – that I know is a double standard – but if followed, will save a lot of grief.

The rule is

If anyone ever asks you for credit — Insist on a Personal Guarantee or walk away from the opportunity.

If you are ever asked for a Personal Guarantee — REFUSE

The final thing I want to mention about Personal Guarantees is this —

It is not unusual for a business relationship to go bad. People often go their separate ways but when one leaves a business, they cannot forget to withdraw personal guarantees given to creditors.

We do see quite regularly see that a person who left a company 2 or 3 years ago finds their old company has been placed into liquidation and that they are being attacked for a guarantee they left in place.

Just remember, if you are leaving a business relationship, and you have given a personal guarantee, make sure that guarantee is formally withdrawn upon your departure from the company.