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What are the implications of signing a director guarantee?

Directors who are considering signing personal guarantees for lenders should make sure they fully understand the implications before doing so.

While a personal guarantee can be a good way to release credit lines that would not have been accessible otherwise, if things go wrong, it can have a considerable negative impact. Company directors need to do their homework and perhaps even take legal advice from an expert such as https://www.parachutelaw.co.uk/director-guarantee to make sure it’s the right choice and doesn’t have unintended consequences. Here are some implications you should bear in mind before signing a director guarantee.
You might still be the guarantor, even if you leave.

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When resigning from a company, a director is not necessarily free of any personal director guarantee that they have made against company debts. Departing directors can ask to be released from the personal guarantee but this is down to the lender, who is likely to ask for another guarantor. If one can’t be provided, then there isn’t much a director can do.

If the worst happens

Government statistics show that company insolvencies are going up. If worse comes to worst and a company defaults on its payments and the director cannot pay back the loan, then the lender may pursue the loan.

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They may go to court to secure a judgement for an Order Charging Land against the director’s personal property. They can also take steps to force bankruptcy on the director, affecting both finances and career as a person cannot serve as a director of a company if they are bankrupt. Therefore, directors should think carefully about giving up their position if they have given a director guarantee, as they may still be held liable, with no control over how the company is run.

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