How to Deal with a Personal Guarantee if your Business Goes into Liquidation
When a business enters liquidation, directors and business owners often face the daunting prospect of personal guarantees (PGs) being called in by creditors. A personal guarantee is a legal commitment where an individual agrees to repay a company’s debts if the business itself is unable to do so. If your business is going into liquidation and you’ve signed personal guarantees, it’s crucial to understand your options and take strategic steps to protect your financial position.
Understanding the Impact of Personal Guarantees in Liquidation
Unlike company debts, which are generally written off in liquidation, personal guarantees remain enforceable. Creditors can demand repayment from the guarantor (you) directly, potentially leading to severe financial consequences, including bankruptcy or asset seizures if you’re unable to pay.
Steps to Manage Personal Guarantees During Liquidation
- Identify and Review Your Personal Guarantees
Start by gathering all documents related to personal guarantees. Check the terms and conditions, the amount owed, and whether they are secured against personal assets like your home. Some guarantees may have clauses that limit liability or allow negotiations.
- Communicate with Creditors
Proactively engaging with creditors can help you negotiate better terms. Many lenders prefer partial repayment or a structured settlement rather than pursuing costly legal action. Consider offering a lump-sum settlement or requesting more manageable repayment terms.
- Assess Whether the Guarantee is Enforceable
Not all personal guarantees hold up under legal scrutiny. A business insolvency specialist or solicitor can help determine whether your guarantee is enforceable, particularly if:
- The guarantee was signed under duress or misrepresentation.
- The lender failed to provide clear terms or independent legal advice.
- The guarantee lacks proper documentation or formal execution.
- Explore Refinancing Options
If creditors demand repayment, refinancing through personal loans, asset-backed lending, or family support might be an option to spread the liability over a more extended period.
- Negotiate a Voluntary Arrangement or Settlement
You may be able to enter into an Individual Voluntary Arrangement (IVA) a formal agreement to repay a portion of your debts over time. This can help prevent bankruptcy and allow you to manage payments affordably.
- Consider Insolvency or Bankruptcy (as a Last Resort)
If the debt is overwhelming and creditors refuse to negotiate, personal bankruptcy may be an option. While it has serious consequences (e.g., loss of assets and credit restrictions), it can provide a fresh financial start.
Protecting Yourself from Personal Guarantees in the Future
- Seek Independent Legal Advice before signing any PG.
- Limit the Guarantee Amount to a fixed sum rather than unlimited liability.
- Request a Time Limit so you’re not liable indefinitely.
- Use a Guarantor Company or personal assets with limited exposure to protect yourself.
Conclusion
Personal guarantees can create significant financial risk when a business goes into liquidation, but proactive steps can help manage the fallout. Seeking professional advice, negotiating with creditors, and exploring alternative repayment options can ease the burden and prevent long-term financial hardship. If you’re facing personal guarantee liabilities, acting quickly is key to protecting your assets and financial future.
Keywood Group is a Licensed Insolvency Practice with offices in Birmingham and London. Our team has extensive experience in advising businesses. Our Insolvency Practitioner is fully licensed in relation to corporate and personal insolvency and is regulated by The Insolvency Practitioners Association. If you want further information, please contact us for a no obligation chat.
