Directors’ personal guarantees are a measure of security used by financial institutions and lenders to protect themselves when providing loans. Typically, directors sign personal guarantees when seeking additional funds for their business. In some cases, it could be to fund a particular project/contract to assist in its completion or a move to a new location however if the funds are to pay pressing creditors, then this is where you could end up in trouble!
If the relevant debt cannot be covered by the business, then the personal guarantees put the Directors’ personal assets on the line.
Personal guarantees typically give lending institutions a very high level of power over the listed asset should debts not be paid.
It is at this point that you must carry out a financial appraisal of your business to ascertain the underlying issue which has led you to fall behind with your creditors. Here at Voscap the team specialises in identifying and providing viable solutions without the need of personal guarantees.
What Happens if you Default on a Personal Guarantee?
In most cases, defaulting on a personal guarantee means you are going to lose whatever asset you put up as collateral. The potential to lose everything in such a way is why Voscap advises so strongly against making these agreements.
How Enforceable is a Personal Guarantee?
As a legal document, personal guarantees are some of the most enforceable contracts out there. While each financial provider will have their own contracts, they will inevitably take the necessary care to ensure that these are watertight in order to protect themselves from legal objections. Assuming the terms stated in the personal guarantee contract are valid and correct, these situations are exceptionally tricky to get out of. In most cases, there is no escape if things go wrong which ultimately could lead to personal bankruptcy.
Why We Do Not Recommend Personal Guarantees
At Voscap Business Recovery, we understand business owners and their struggles. We know that you would do anything to save your business. Whilst we understand the temptation, for the reasons stated in this article Voscap strongly advises against making personal guarantees to wipe business debt. Whilst this may function successfully as a short-term fix, it won’t actually fix anything in the long term, and this makes it an incredibly high-risk thing to do. All too often we see business owners losing everything as a result of personal guarantees – not just their business, but the family home too.
Obviously, we want to avoid this outcome at all costs. For this reason, if you would like to seek business recovery advice and discuss the alternatives to personal guarantees, contact Voscap today on 020 7769 6831, or email team@voscap.co.uk, to speak to one of our business recovery specialists.
