Key Takeaways
- Personal guarantees make you personally liable for business debts — your home and savings are at risk
- Many PGs contain technical flaws that can make them unenforceable — always get legal review
- Lenders often accept 30-60% settlement rather than pursue costly enforcement
- An IVA can protect you when multiple PGs are called in simultaneously
What Exactly Is a Personal Guarantee?
A personal guarantee (PG) is a legal agreement where a company director personally guarantees to repay a business debt if the company cannot. It effectively removes the protection of limited liability — the core reason most directors incorporate in the first place. PGs are commonly required by banks for business loans, commercial landlords for leases, and asset finance providers for equipment. They can range from a few thousand pounds to millions.
The Stark Reality
When a PG is called in, your house, savings, investments, and other personal assets are at risk. The lender can apply for a charging order against your home, freeze your bank accounts, and petition for your bankruptcy. Company liquidation does NOT erase personal guarantees — they survive the company and follow you personally. This is why understanding PGs BEFORE you sign is essential.
Types of Personal Guarantees
Unlimited Personal Guarantee
The most dangerous type. You guarantee ALL of the company's liabilities to that lender — including future borrowing, interest, and enforcement costs. There's no cap on your liability. These are common with bank overdrafts and loan facilities. Never sign an unlimited PG without understanding the full exposure.
Limited Personal Guarantee
Your liability is capped at a specific amount — for example, £50,000. Once that amount is paid or settled, your liability ends. These are preferable but still carry significant risk. Always negotiate for a cap before signing.
Commercial Lease Guarantee
Required by commercial landlords. You guarantee rent payments, service charges, and dilapidations. These can be particularly dangerous because they often cover the full remaining lease term — potentially years of rent.
When a PG Is Called In: Your 5-Step Response Plan
Don't Ignore It — Engage Immediately
The single biggest mistake directors make is ignoring PG demands. This leads to default judgments, escalating costs, and fewer options. Respond to all correspondence promptly. Acknowledge the demand and request time to seek advice. Silence is treated as refusal — and accelerates enforcement.
Request Full Documentation
Demand a copy of the signed PG agreement, a full breakdown of the amount claimed (principal, interest, costs), and evidence that the lender has exhausted remedies against the company first. Many PGs require the lender to pursue the company before pursuing you — this is a critical defence point.
Get Legal Review for Enforceability
A surprising number of PGs contain technical flaws: missing signatures, incorrect dates, vague terms, lack of independent legal advice, or breaches of the Consumer Credit Act. A solicitor specialising in PG defence can identify these flaws and use them to challenge enforceability. This alone can save tens of thousands.
Negotiate Settlement — Lenders Often Accept 30-60%
Lenders are businesses too. They know that enforcing a PG through the courts is expensive, time-consuming, and uncertain. Many will accept a lump-sum settlement of 30-60% of the debt rather than pursue full enforcement. This is where professional negotiation is invaluable — knowing what to offer, when, and how to frame it can save you hundreds of thousands.
Explore Formal Protection (IVA)
If you have multiple PGs being called in, an Individual Voluntary Arrangement (IVA) may be appropriate. An IVA consolidates your personal debts into a single monthly payment over 5-6 years, protecting you from individual enforcement actions. It can prevent bankruptcy and protect your home. Professional advice is essential to determine if this is right for your situation.
How to Protect Yourself Before Signing a PG
Negotiate a Cap
Always negotiate a maximum liability amount. A £50,000 cap is infinitely better than unlimited liability.
Include a Time Limit
Specify that the PG expires after a set period or when certain conditions are met (e.g., loan balance falls below a threshold).
Get Independent Legal Advice
Having a solicitor review the PG before you sign creates a record of informed consent and may reveal unfavourable terms.
Consider PG Insurance
PG insurance can cover 60-80% of your liability if the guarantee is called in. The premium is typically 1-3% of the guaranteed amount.
Facing a Personal Guarantee Demand?
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