Your personal guarantee after a company fails

What is a personal guarantee?

A personal guarantee is a promise you sign to repay a company's debt yourself if the company cannot, which makes you personally responsible for that debt.

GOV.UK describes it as “a legally binding agreement that the director will personally repay a debt if the company fails to meet its financial obligations” (opens in a new tab) for that debt.

Lenders often ask for one before they lend to a small company. GOV.UK gives a finance agreement, an overdraft or a bank loan (opens in a new tab) as examples, and landlords and suppliers sometimes ask for the same thing. The guarantee is a separate agreement between you and the lender, alongside the company's own.

It is one of the main ways a company debt becomes yours. Read when a director is personally liable for company debts for the others.

What happens to a personal guarantee if the company fails?

If your company cannot pay a debt you personally guaranteed, the lender can pursue you for the guaranteed amount, your personal assets such as your home can be used to settle it, and you may be made bankrupt if they are not enough.

GOV.UK puts it in these words: “your personal assets such as your home, car, savings and investments could be used to settle that company debt” (opens in a new tab).

Read the guarantee itself. It sets out how much it covers and whether other directors signed it too. GOV.UK says you must fully understand its terms, and if others signed, it is worth talking to them early, because what you decide can affect them.

If the company is closing, see creditors' voluntary liquidation. NTF Corporate Solutions Limited is part of the NTF group and run by the same two practitioners, so the group benefits from any work it takes on.

Can I negotiate a personal guarantee?

You can ask the lender to change or settle what you owe under a personal guarantee, and some lenders may agree a settlement, but any change needs the lender's agreement because the guarantee is an agreement between you and the lender.

Before you approach the lender, it helps to have a clear list of what you own, what you earn and what else you owe. Free advisers can help you prepare.

Our practitioners do not negotiate informal settlements with lenders. What we can do is put a formal offer to the lender, and to all your other creditors at once, through an Individual Voluntary Arrangement proposal.

Can an IVA or bankruptcy deal with a personal guarantee?

A personal guarantee is your own liability, so it can usually be included in an IVA with your other debts, even before the lender calls it in; if the guarantee is secured on your home, that security is not affected unless the lender agrees (opens in a new tab).

Before a guarantee is called in, the amount is not yet fixed. The voting rules let it count at £1 unless a higher value is put on it (opens in a new tab), and how to treat it is the insolvency practitioner's judgement case by case. Once approved, an IVA binds every creditor entitled to vote (opens in a new tab). Bankruptcy can deal with it too, because the Insolvency Act counts a liability as a bankruptcy debt whether it is “certain or contingent” (opens in a new tab).

In an IVA the lender is one of your creditors and votes on your proposal with the others. The IVA starts if three quarters or more, by value, of the creditors who vote agree, so where the guarantee is your largest debt, the lender's vote can decide it. Fees apply, and the IVA can be cancelled if you miss repayments.

In bankruptcy the guarantee is one of the debts you are usually released from on discharge, one year after the bankruptcy starts (opens in a new tab). A trustee deals with your assets for your creditors.

Your discharge does not release anyone else (opens in a new tab) who is liable for the same debt, such as a co-director who signed the same guarantee. Their liability continues, so the choice affects them too.

Can I get out of a personal guarantee?

A personal guarantee is legally binding, and a lender can enforce it only if it is in writing and signed by you (opens in a new tab). Whether it can be challenged or settled depends on its terms and how it was signed, so take independent legal advice. If you cannot pay, it is a personal debt that can be dealt with through an IVA or bankruptcy.

GOV.UK says you must fully understand the terms of a guarantee and should consider independent specialist advice (opens in a new tab). The guarantee itself may also say when it ends, so read it first.