Personal Guarantee Solicitors

Personal guarantees are important documents that create significant legal risks. You should not sign a personal guarantee without being very clear about the legal and financial implications.

Solicitor legal advice on personal guarantees

We provide a wide range of experienced and cost effective personal and corporate guarantee legal advice and services, including :-

• We draft personal guarantees for large corporate clients but also for landlords and other business and individual clients

• We offer an independent legal advice service for individuals who have agreed in principle to a guarantee and where the lender or other party insists that the person has to receive independent legal advice.

• We advise on enforcement and enforceability of personal guarantees, whether for the party seeking to enforce or the party facing enforcement who wants to see if there is way to get out of paying or negotiate.

• Advice on legal aspects and issues arising with personal guarantee insurance

• Legal advice and assistance on personal guarantees where a business is insolvent or mighty be insolvent.

Common Uses of Personal Guarantees

Guarantees are used to create additional legal and financial comfort for a wide variety of contracts, including bank loans, tenancy agreements, leases and other contracts. Guarantees are also used at the corporate level such as where a parent company is required to guarantee borrowings or commitments of a subsidiary company and company directors are also commonly required to give personal guarantees for company commitments.

One of the main issues with personal guarantees is there is often an inequality in bargaining position so that the business or individual demanding that a guarantee is entered into has an advantageous position and the other party is commonly in a weak position. The terms of the guarantee can be onerous and risky (see below) and the guarantee documents are often presented as being on a non-negotiable, standard and take it or leave it basis.

When can you become liable under a personal guarantee?

In order to for a personal guarantee to result in actual financial liability for the guarantor, the primary debtor must default. It is a common misconception that the creditor must then seek to fully  enforce the primary debt first before then enforcing the personal guarantee. So, there is no legal requirement on the creditor to start a court claim against the primary debtor before calling in and pursuing the guarantor under the personal guarantee.

All monies guarantees and the importance of cancelling guarantees where possible

Many personal guarantee backed bank loans are drafted with an all monies clause. .An all monies clause means that if you sign a guarantee for a bank loan and the loan is then fully paid off, the guarantee will not automatically lapse. It may apply to future borrowings of the business unless you cancel it.

If you are asked to sign a personal guarantee with such a clause, you should be careful and see if you can negotiate on the clause or have it removed. If the clause must remain be sure to remember to cancel the guarantee at the right time. So, where there is an all monies clause, it is important to ensure that there is also a clause where you can cancel your guarantee on notice and be sure to do so when the company has no current debts to the bank.

Another important potential option is to seek to expressly limit any personal guarantee to a maximum amount or a specific transaction, known as a specific monies guarantee, linking the guarantee to a specific debt only.

We are often asked by directors what will happen to a personal guarantee they have given as director if they resign from the company? In most cases, the personal guarantee will not automatically fall away in that case and the director may have the contractual right in the guarantee to cancel it, alternatively he or she might be able to negotiate to have it cancelled or might need to seek an indemnity against liability from the company.

What might make a personal guarantee unenforceable?

In most cases it is not easy to successfully legally escape liability under a personal guarantee. However, sometimes it is possible to create the conditions to at least try and negotiate a lower amount to pay. The main legal grounds for claiming that a personal guarantee is unenforceable are :-

• That there has not been a default – where there is a challenge to the underlying debt. Might apply, for example, where there is a guarantee for a tenant’s obligation in a leas and the tenant does not pay rent but claims they have not paid because the landlord is in default due to disrepair.

• Important facts were not disclosed to the guarantor before signing.

• Material change - claiming there has been a material change to the underlying transaction which the guarantor has not been made aware of.

• Undue influence - the classic scenario here is where a spouse who is not involved in a business is required to give a personal guarantee. The ability to successfully argue undue influence has diminished because many lenders now insist that before signing a personal guarantee, those signing must receive independent legal advice first.