What is a personal guarantee?

A personal guarantee is an agreement by one party to be liable for the debts of another. Usually, personal guarantees will be given by the directors or shareholders of a company to personally guarantee the payment or obligations on behalf of their company. A major problem that you can face if your company is insolvent is the issue of personal guarantees. In insolvency and administration cases, usually the guarantee provider will immediately issue a demand for the full balance. If you can’t pay back your guarantee, the loan security will be used. In company administration it is common or a director to list their house as a guarantee, which means they can be forced to sell their house to satisfy the creditor.  

Essentials parts a binding personal guarantee

1. Conduct a company search to establish who the directors and shareholders are
2. Ensure the clauses of the personal guarantee are clearly marked as a guarantee where the individual is held personally liable.
3. Personal guarantee should be produced to the company director along with business contract.
4. Ensure the personal guarantee is dated
5. Ensure the guarantor provides their relevant details such as date of birth and address.
6. Guarantor must sign in front of an adult witness

Many issues can arise from an invalid personal guarantee; therefore, you should be careful to ensure that the guarantee contains all of the relevant information and terms of the agreement, and the relevant parties. Personal guarantees should be reviewed by a professional to ensure your guarantees are properly drafted.