Director’s Personal Guarantee

A director’s personal guarantee is a legal document in which a company director personally guarantees the repayment of a credit facility or business loan. If the director personally guarantees the credit facility, it means that if the company fails to meet its financial obligations, the director becomes personally liable for the outstanding debt.

In such instances, the director is taking some form of liability or waiving some of their rights without necessarily enjoying any direct personal benefit.

The director's personal guarantee is a formal legal document that outlines specific terms and conditions, including the maximum liability amount, repayment terms, and interest rates.

The director must sign the agreement voluntarily, acknowledging their liability for the company's debts. If the company defaults and the director fails to repay the guaranteed debt, the lender can take legal action to enforce the guarantee in court, which could significantly impact the director's credit score and financial future.

What are the Risks of a Personal Guarantee?

Before committing to a director’s personal guarantee, you should understand the risks associated with the personal guarantee.

Seek Independent Legal Advice

Entering into a personal guarantee involves significant financial and legal risks for the director. One of the most substantial risks is the potential loss of personal assets. If the borrower defaults on the debt, the guarantor becomes personally liable. In this case, the director, meaning their assets, including their savings, assets and investments, can be sized to repay the remaining amount.

This can lead to severe financial consequences, including losing one's home and other valuable possessions and bankruptcy.

Credit Score

The director's guarantee could also impact the guarantor's credit score if the company defaults. This can make securing future loans or credit difficult and strain personal relationships.

The Guarantee is Binding

Once signed, guarantees are not easy to revoke. They are binding contracts that make it challenging for guarantors to escape their obligation even if circumstances change.

Considering these and other risks, you should carefully assess the potential consequences, read the documents, and seek independent legal advice before agreeing to provide a director's guarantee to fully understand your financial and legal obligations.

Why You Need Independent Legal Advice

If you’re considering a director’s personal guarantee, you should consider independent legal advice for several reasons:

Understand the Risks

Before appending your signature, you must understand the full risks of the guarantee. While most lenders provide a standard document, depending on the details of the credit facility, your guarantee can be adjusted to ensure the lender minimises their risk. Getting independent legal advice can help you fully understand the risks and weigh whether they are worth the benefits.

It’s a Legal Requirement

Some institutions require that you get independent legal advice before signing any paperwork to ensure you understand your legal obligations. In such instances, the institution may require you to present them with an ILA certificate as proof that you have sought the advice.

You can get the ILA assistance at Independent Legal Advice by setting up a free consultation at a time that suits you. We have an extensive team of solicitors with experience in different fields of law to ensure we provide the most reliable and expert advice.

With our quick document dispatch and affordable rates, we make making an informed decision easier and faster.