Running a limited company gives directors and shareholders the benefit of limited liability – but that protection is often not absolute. Many directors discover too late that personal guarantees (PGs) they’ve signed for bank loans, supplier credit, or lease agreements can come back to haunt them when the business struggles.
After 40 years in insolvency, I’ve seen personal guarantees create some of the most stressful moments for directors. The good news is that with early awareness, good record‑keeping, and timely advice, you can manage the risks and protect yourself from the worst outcomes.
This guide explains what a PG is, when it may be called in, the practical steps you should take now, and the right way to approach matters if your company is facing insolvency.
What is a personal guarantee?
A personal guarantee is a legal promise by a director or individual to repay company debts if the company itself cannot. They are often:
-
Bank overdrafts or loans – most banks ask for PGs from SME directors.
-
Asset finance agreements – equipment leases or HP contracts.
-
Landlord leases – personal liability for unpaid rent and dilapidations.
-
Supplier accounts – occasionally for significant credit limits.
The guarantee may be capped (to a fixed amount) or unlimited, and sometimes backed by a legal charge over personal property (often the family home).
You can see HMRC’s own guidance on directors’ liabilities and company debts here
When do guarantees ‘kick in’?
A lender or supplier will usually call on a PG if:
-
The company is in liquidation, administration, or receivership.
-
There are arrears and no repayment plan agreed.
-
Security (e.g. a floating charge) isn’t enough to clear the debt.
Once called, you’re personally liable, and the creditor can pursue you through the courts. Judgments are enforceable against personal assets, including your home (if unprotected) and savings. You can check enforcement procedures at gov.uk make a court claim for money.
Common pitfalls for directors
-
Forgetting you signed a PG
Years later, when a business struggles, directors are often shocked by ‘seemingly dormant’ guarantees surfacing. -
Assuming a company sale clears PGs
Unless the lender releases you in writing, you may still be liable even after resigning as a director or selling your shares. -
Mixing PGs with connected lending
If you’ve borrowed personally and introduced funds, the repayment position becomes complicated in insolvency. -
Not understanding joint and several liability
Where two directors sign, the creditor can pursue either one for the full amount.
Practical steps for directors
-
Keep a PG register
Note every guarantee you’ve given, the creditor, the amount, and whether capped or unlimited. -
Review terms regularly
Ask lenders to confirm balances and whether guarantees can be released (especially after refinancing). -
Plan before insolvency
If insolvency looks likely, factor PG exposure into your decision‑making. Sometimes it’s better to negotiate directly with the PG creditor rather than risk uncontrolled enforcement. -
Check insurance and indemnities
In some sectors, insurance or shareholder indemnities may exist -rare, but worth checking. -
Avoid new PGs under pressure
If suppliers or landlords ask for fresh guarantees when the company is already under strain, think carefully and seek advice first.
What happens in insolvency?
In a Creditors’ Voluntary Liquidation (CVL) or administration, PG creditors rank as unsecured creditors in the company’s insolvency but can also enforce personally against you.
-
In a CVL: you may receive multiple claim letters shortly after appointment.
-
In administration: the moratorium protects the company but not you personally.
For background on processes, see:
-
For case law examples, BAILII provides a searchable database of guarantee disputes: www.bailii.org
Negotiating with guarantee creditors
Creditors calling on PGs are usually pragmatic – they want repayment but may accept:
-
Structured repayment plans over time.
-
One‑off settlements (often discounted for speed).
-
Release in exchange for security (e.g. a voluntary charge on property).
Always keep written records and avoid verbal promises. Where debt levels are unmanageable, you may need to consider personal insolvency options such as an Individual Voluntary Arrangement (IVA) or bankruptcy—both overseen by licensed insolvency practitioners. See Insolvency Service guidance on debt solutions.
Takeaway checklist
✅ Create and maintain a register of all PGs you’ve signed
✅ Request written confirmation from lenders before assuming you’re released
✅ Factor personal exposure into company strategy if insolvency is possible
✅ Do not sign new PGs under financial pressure without advice
✅ Keep all correspondence and agreements in a safe file
✅ If called on, negotiate promptly – creditors prefer settlement over litigation
✅ Where debts are unmanageable, take early advice on IVA or bankruptcy
Final thoughts
Personal guarantees bridge the gap between limited liability and personal risk. They aren’t inherently bad – without them, many businesses wouldn’t secure funding – but they require careful handling.
The key is awareness, planning, and early action. If you’re worried about PG exposure, talk to a licensed insolvency practitioner before matters escalate. It could save not just your business but also your personal financial future.
Paul Brindley FCA
Licensed Insolvency Practitioner
Midlands Business Recovery
Hashtags:
#Insolvency #PersonalGuarantees #Directors #BusinessAdvice #CVL #Administration #MidlandsBusinessRecovery