Among the many and varied detrimental consequences of the COVID-19 pandemic is the impact on the savings and investments of individuals, particularly in relation to estate planning. Financial markets have...
Liabilities under personal guarantees
There are several circumstances in which a potential lender might ask a company director to guarantee a loan or credit facility, including those relating to property or supplies.
Any director who provides a personal guarantee will be personally liable for debt repayments if their company should later be unable to pay the debt. It may be possible for the director to negotiate the obligations of a guarantee and establish a liability cap with the creditor in this regard as part of their contractual arrangements. However, this can prove difficult, particularly if the company requesting the loan or credit is experiencing financial difficulties.
If you are a director considering making such a guarantee, it is worth seeking advice to minimise risk before making the commitment. If you have already given a guarantee which is now being called in, there can be formalities relating to guarantees which, if not followed, render them ineffective. We can review existing guarantees and advise on their effectiveness and the scope for challenge.