Director Personal Guarantee Legal Advice

It is very common for company directors to be asked to give a personal guarantee. This is because lenders and other creditors may want to ensure that they have someone to turn to if the company fails to repay its debts.

Directors are most likely to be asked to give a personal guarantee when :-

• The company borrows money - the lender may ask the directors to provide a personal guarantee. This is because the lender wants to ensure that the directors have a personal stake in the company's success, and that they will be motivated to make sure that the company repays its debts.

• The company agrees a commercial premises lease - the landlord may ask the directors to provide a personal guarantee. This is because the landlord wants to ensure someone is personally liable if the company defaults on its lease payments.

Alternative options instead of Director Personal Guarantee?

All alternatives, where possible, also have pros and cons. Options may include :-

• Issuing a second charge against company assets - a second charge is a type of security interest that ranks behind a first charge. This means that the second charge holder will only be repaid if the first charge holder is repaid in full.

• Securing the loan with parent company guarantees - If the company has a parent company, the parent company can issue a guarantee to the lender. This will ensure that the lender has two sources of repayment if the company defaults on its debts.

• Using invoice discounting - a type of financing where a company sells its unpaid invoices to a third party. The third party then takes ownership of the invoices and is responsible for collecting the payments.

Director Personal Guarantee Insurance

The cost of insurance will vary depending on a number of factors, including the director’s personal financial circumstances, the size and turnover of the company, and the amount of the personal guarantee. However, it is generally a relatively affordable type of insurance.

There are a few drawbacks to Director Guarantee insurance, including:

• Cost: can be expensive.

• Limited coverage - typically only covers the full amount of the director’s personal guarantee, up to a maximum limit.

• Potential for exclusions - there may be exclusions such as for fraudulent or reckless behaviour.

How we can help

Our experienced team of corporate and insolvency lawyers provide expert advice on the full range of issues related to director guarantees including :-

• ensuring director clients understand the legal implications of signing a personal guarantee before committing to such an agreement.

• negotiating favorable terms such as caps on liability or clear automatic expiry clauses.

• advising on the possible of securing an indemnity for personal liability from the company or another connected entity.

• advising on any options to challenge enforceability and/or negotiating with the creditor if the guarantee is called in.