Understanding Personal Guarantees


Quite often, we have clients chasing directors for the debts of the director’s company where a personal guarantee has been provided.  Some directors fail to recognise that they have provided a personal guarantee. So what should you look out for?

What is a Personal Guarantee?


A personal guarantee is a promise that is often provided by directors of a company, making the directors personally liable for the payment of money or compliance with obligations on behalf of their company.

 

Read! Read! Read!


The most common mistake by directors is that they fail to read the fine print on contracts.  A lot of the time, commercial contracts include personal guarantees in the fine print of their terms and conditions or even just a subtle reference under the director’s signing clause stating they are signing in their capacity as director and in their personal capacity.


Once signing these contracts it will be very challenging for you as a director to avoid liability under a guarantee.  In short, it is extremely important to read and understand the terms of the contract before signing and if you do not understand, seek legal advice.


What to do if you have provided a Personal Guarantee?


To prevent exposing yourself to personal liability, you should monitor and keep a record of the contracts where you have provided personal guarantees.  It is important to ensure that your company is keeping on top of payments to avoid liability pursuant to any guarantees you have given.  


If you have provided a personal guarantee and your company fails to make its payments, be aware that creditors can seek judgment at Court against you personally.  


If you are resigning as director or selling the company, you should consider getting the personal guarantee removed.  You may do so by communicating with your creditors and formally withdraw your guarantee, however this can be a complicated matter so legal advice is recommended.


If you have any questions regarding personal guarantees or require advice before signing, please do not hesitate to contact our friendly staff today.

  

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