What happens to personal guarantees if I close my company?

Shaun Barton

Shaun Barton | Company Closure Expert

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Are personal guarantees enforceable after liquidation?

Personal guarantees play an important part in securing finance and helping companies to start up and grow. They reassure commercial lenders that their money will be repaid regardless of the circumstances a business experiences in the future.

In turn, this reassurance helps directors with vital funding for day-to-day operations and strategic plans. There are potential drawbacks for directors on a personal level when providing a guarantee of this type, however, and one of these can materialise when a company is closed.

What is a personal guarantee?

A personal guarantee is a legally binding agreement between you as a director and the commercial lender. It removes the limited liability that you enjoy concerning that business debt, making you personally liable for outstanding monies if the company cannot pay and has to close down.

Each guarantee is different, however, and you may have negotiated a repayment sum that’s only a proportion of outstanding debt. Seeking professional advice before signing a personal guarantee is always a good idea and can protect you from suffering unnecessary debt as an individual.

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Company closure and your personal guarantee

The debt covered by a personal guarantee still exists even if you close your company. It cannot be written off as by signing the guarantee you’ve taken legal responsibility for repaying the lender, as have any other directors who signed.

When you co-sign a personal guarantee with another director under joint and several liability it means you can be pursued for the money jointly or individually. If the other guarantor cannot afford to pay and you can, you’ll be responsible for the entire amount rather than just half of it.

Even if your business is insolvent, loans with a personal guarantee attached remain valid, and you may be forced into selling personal assets such as your property to fulfil your legal obligations.

Need to speak to someone?

With multiple offices across the UK and a vastly experienced team of business closure experts, you are never far away from the advice you need. Our Licensed insolvency practitioners provide free consultations to all directors and shareholders, and can quickly ascertain which closure method is best for your business.

We are licensed by recognised professional bodies and have helped thousands of directors over many years. Contact us today for your free company closure consultation.

What happens if you cannot fulfil a personal guarantee?

If your business defaults on the loan, the lender is likely to activate the personal guarantee, making you liable for the outstanding sum. Should the company enter liquidation and you cannot afford to meet the demands of the personal guarantee, the lender could pursue you through the courts for repayment.

Depending on your circumstances, this might lead to personal bankruptcy. Taking action through the court is expensive, however, and the lending institution may be open to negotiation on the amount to be repaid if the company has had a good history of repayment for the most part.

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Seeking guidance when a personal guarantee is called in

It’s vital to obtain professional advice if you need to close your company, especially when there are personal guarantees in place. Company Closure will help you close down the business in the correct manner if it owes money and ensure that you understand the changes in your legal obligations when a company is insolvent.

The situation concerning personal guarantees is complex when closing a company but we are a highly experienced team of business closure experts and can support you in moving forward. Please get in touch to find out more about how we can help.

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