Personal Guarantee Solicitors
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When your company borrows money, banks and lenders often ask for a personal guarantee. However, these agreements can be fraught with risk, and you may lose your property if the business cannot repay.
Our personal guarantee solicitors are here to help you understand and negotiate your agreements. We can interpret the contract, explain your obligations and spot the pitfalls. Then we use our decades of combined experience to recommend ideal solutions and safety nets to mitigate these hazards.
What is a Personal Guarantee and How Does it Impact You?
Your limited company is a person in the eyes of the law. It operates separately from you and can enter contracts and incur debts that you are not liable for as you are ‘behind the company’s veil’.
This separation protects you. However, it means that your company is unlikely to own significant assets or have an impressive credit history, so securing loans is difficult. Directors may have to act as guarantors for loans and mortgages, making them personally liable if the business cannot repay.
Your guarantee can be:
- Given by one director
- Given by multiple directors
- Limited sums
- In ‘all monies’ form – unlimited sums
- Relevant to current, existing and future liabilities
The Legal Risks Associated with Personal Guarantees
Personal guarantees are a legal risk by definition. When you sign, you are liable for unpaid loans, placing your property on the line. The lender can sell your assets to recover the unpaid debt.
Common Personal Guarantee Legal Issues
A Court must find a personal guarantee to be sufficiently clear and complete. It must be in writing and either signed by the guarantor or someone authorised to sign on their behalf. Electronic records such as emails are valid.
It is also subject to reasonableness and fairness tests. Unfair terms prevent the guarantee from being legally binding. The lender must fairly represent their terms and ensure that the guarantor had independent legal advice and was not under undue influence when entering the contract.
The level of liability must depend on the original agreement entered into. However, this co-extensiveness principle does not apply to indemnities; whilst a void or unenforceable agreement can easily lead to a set-aside guarantee, setting aside indemnities is harder.
Contracts often have clauses designed to catch you out. Here are some typical examples:
- Repayment on immediate demand
- Joint or several liability – even if several directors sign guarantees, the lender can pursue the assets of a single guarantor for the full repayment rather than splitting it equally
- Indemnity – the lender can include an indemnity that allows them to enforce the guarantee without legal action
- Security for the personal guarantee – the lender may ask for assets as security, meaning they can sell them without legal action.
- No power to negotiate
When You Need Independent Legal Advice
We recommend seeking independent legal advice (ILA) whenever your limited company enters a financial agreement requiring a personal guarantee. In many cases, independent legal advice is compulsory to prevent you from being coerced or pressured into signing. You do not want to fall foul of a poorly written contract.
Here are some common agreements that might require ILA:
- Mortgages
- Business loans
- Leases of premises, equipment or vehicles
- Asset sale agreements
- Commercial contracts
Mitigating the Risk of a Personal Guarantee
Although your options vary between companies, you can take steps to mitigate the risks of a personal guarantee, including:
Veto Rights
Your company may give you the right to veto any business decision that you believe will increase the risk of failing company performance or loss of your assets.
Access to Business Records
If you are a guarantor but not a director, having access to business records gives you early warning of impending issues allowing you to prevent them or arrange a solution.
Guarantee Caps
Limiting the sum of the guarantee and placing an automatic expiry date on the agreement helps reduce the potential risk.
How We Help You
Accurate, independent legal advice is vital when entering into a personal guarantee to ensure you understand its implications. We condense them into simple terms, breaking down the legal jargon and making your obligations and risk as clear as possible; our team is not satisfied until you can make an educated decision.
We can also explain appropriate measures to lower the risks of failing to repay and prepare your business for troublesome periods to protect your assets.
Instruct Our Team
If you want the help of our independent legal advice personal guarantee solicitors, please contact us today. We can explain our services further and arrange a free, non-obligation consultation to gain more information about your situation.
FAQ
Do independent legal advice meetings have to be face-to-face?
Most lenders will agree to a virtual meeting between independent legal advice solicitors and their clients, especially if the solicitors are based in other parts of the country or their clients work from home.
Do I have to sign a Personal Guarantee agreement?
No, even after you receive independent legal advice, you do not have to sign a personal guarantee. However, lenders rarely provide loans to companies without a guarantee.
If I have not received independent legal advice, can I sign a Personal Guarantee?
Lenders usually insist on a guarantor obtaining independent legal advice to ensure they understand the risks and implications before entering into the agreement. The advising legal practitioner will sign a certificate confirming that the guarantor understood the advice given to him or her.
Qarrar Somji
Solicitor-Advocate
Qarrar qualified as a Solicitor Advocate in 2014 having previously had experience in a varying range of litigation roles.
Ada Chu
Assistant Solicitor
Ada graduated from University of Birmingham in 2016 with a bachelor’s in law. She then completed the LPC and MSc in Law, Business and Management in 2020.
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