What happens to a director's personal guarantee when liquidating a company?
Personal guarantees are commonly demanded by banks and other lenders before they sanction business borrowing, and it’s not unusual for personal guarantees to be secured on an asset, such as a director’s home.
While a company is able to service the borrowing - that is meeting the contractual monthly payments as and when they fall due - the existence of a personal guarantee causes no issues. The personal guarantee will simply sit in the background while the company pays off the loan using its own funds.
A serious problem can arise if the company experiences cash flow problems and becomes insolvent, however. If there’s no option other than to liquidate the company, any personal guarantee crystallises, and this can cause severe financial difficulty for the director personally.
What is a personal guarantee?
A personal guarantee is a legally-binding commitment on behalf of a company director to repay the balance on an outstanding loan if the company cannot afford to do so itself. Personal guarantees lower the perceived risk of the lender and therefore encourages business lending, which in many cases is crucial for growth and development.
How does liquidation affect a personal guarantee?
When a company becomes insolvent and enters into liquidation, any outstanding personal guarantees can become a significant issue for you and potentially other directors if they have co-signed.
As per the terms of the personal guarantee, the responsibility for repaying the outstanding balance on the borrowing will pass to those individuals that signed the personal guarantee upon liquidation. In many cases, company financial problems go hand-in-hand with personal financial worries. In many cases therefore, a director is simply unable to repay the personally guaranteed loan using personal funds when this is asked of them.
If your company is to be liquidated you should carefully inspect the terms of the guarantee and seek professional guidance on the possible repercussions. UK Liquidators can offer you a free same-day consultation to assess your level of liability, and provide professional advice on how to proceed.
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What does an outstanding personal guarantee mean for you?
If you’ve provided a personal guarantee for a lender and your company is being liquidated, your creditor will demand repayment in full. It’s likely they’ll pursue you through the court if necessary, and there’s an ever-present threat of personal bankruptcy as a result.
The guarantee may be secured on an asset, such as your family home, in which case the lender will take steps to seize that asset. In this respect, they’re likely to seek a high court judgment, which allows them to take enforcement action.
The lender could issue a Charging Order through the court, which means they have specific legal rights over the property, and may even be able to enforce its sale.
Concerned about National Living Wage and NI increases?
With the rates of both National Living Wage and employer National Insurance Contributions increasing in recent years, this additional cost of employing staff has added more pressure onto already squeezed cash flows. If you are worried about the impact this is having on your company's finances, talk to the experts at UK Liquidators. As licensed insolvency practitioners we can explain your options and help you plot a way forward. Call today on 0808 253 9878.
Can you cancel a personal guarantee?
It may be possible to negotiate your level of personal liability with the lender, or potentially arrange a payment plan to repay the outstanding amount, but this is by no means assured.
Personal guarantees are typically worded to avoid ambiguity or uncertainty over liability if the worst-case scenario materialised and a company can’t repay a loan. Lenders take great care to lower their risk and avoid any legal objection if a personal guarantee is called in.
This is why you need to seek professional guidance on how to proceed, as personal guarantees differ in their requirements and levels of liability. There may be flaws in the terms and conditions that render it partially or wholly unenforceable, for example, changing the terms without advising you.
UK Liquidators can help you if you’re liquidating a company with outstanding personal guarantees. We’re liquidation specialists and will provide reliable professional guidance on the best way forward.
Please contact one of our partner-led team to arrange a free same-day consultation. We operate an extensive network of offices around the UK, so you’re never far away from professional help.
Jonathan Munnery
Insolvency & Restructuring Expert | 20+ Years Insolvency Experience
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
IPA Member MABRP Member IPA Regulated
“ Directors often wait too long before seeking advice. The earlier you call, the more options remain available to you — and the better the outcome for everyone involved. ”
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
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