As the director of a company you may have taken out a Personal Guarantee (PG) as security against a loan for your business. This is very common practice as it gives the lender an extra level of comfort when lending funds, while giving the company some much needed funds.
Your lender should have advised you about the ins and outs of the PG. Like an insurance policy, when things are going well the details of the PG are often not considered. However, when a problem arises the focus turns to the details. In the case of a PG, when the company becomes insolvent (i.e. when it cannot pay its bills when they are due) the implications of the PG become very real for the director.
Directors’ Personal Guarantees & Insolvency
If your company becomes insolvent, your creditors will want to recover their liabilities. If the assets of the company will not achieve this, then their focus will turn towards the PG. The appointed liquidator has a duty to recover all the necessary assets in an attempt to cover the company’s liability – including a PG.
The implication of this is often that the creditors will come after the directors’ personal funds until the debts are fully paid off. For the director this means that not only has their business got serious debt problems, but so have they personally.
Action you can take
If you have taken out a Personal Guarantee and your company is insolvent – or looks like it might be heading that way – you should seek professional advice now.
Clarke Bell have advised many business owners on what they should do in this situation.
For your free advice, give us a call on 0161 907 4044 or e-mail [email protected]
This is too important a situation for you to ignore.