A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
What Happens to Personal Guarantees in Liquidation?
A personal guarantee is a promise by a director (or other individual) to repay a company debt if the company itself cannot. When a company goes into liquidation, any guarantee you have signed does not disappear with the company - it remains your personal obligation.
This is one of the most common and significant sources of personal liability for directors. If the company cannot pay, the lender or supplier will look to you.
Which Debts Are Likely to Have Guarantees?
Personal guarantees are commonly required for:
- Bank loans and overdrafts - almost always guaranteed by directors
- Commercial mortgages and asset finance
- Trade credit with larger suppliers
- Commercial leases - landlords often require a director's guarantee
- Invoice finance and factoring facilities
Before liquidation, it's essential to identify every guarantee you have signed. The company's records may not tell the full story, so check your own files and correspondence.
What Happens When the Company Fails to Pay?
Once the company enters liquidation and cannot pay, the creditor will:
- Demand payment from you personally under the guarantee
- Pursue you for the guaranteed amount - through correspondence, and potentially court action
- Call on any security if the guarantee was secured against your home or other assets
A guarantee is a separate contract between you and the creditor. It is not affected by the company's liquidation.
What You Can Do
- Identify all guarantees before liquidation where possible
- Check whether they are secured against your home or other assets
- Negotiate - some creditors will accept a reduced lump sum or a payment plan
- Take advice - if the guaranteed debts are large, personal insolvency options (an IVA or bankruptcy) may be relevant
Speak to a Licensed IP
If you've signed personal guarantees, knowing your exposure before liquidation is vital. Our Manchester-based practitioners will help you assess the position and explain your options - confidentially and without judgment.