What happens to a personal guarantee in liquidation?
Not surprisingly this is a very common worry for directors. People or businesses that lend out money to companies often want some form of security should the company not be able to pay the loan back. This is normally by way of a personal guarantee. The lender or supplier will draw up an agreement. These are legally binding as they form part of the contract for the goods or services provided. Banks will often support personal guarantees with a fixed charge on the family house. In the event of a default by the company or liquidation it is likely that the personal assets may not cover the full amount.
So who asks for personal guarantees?
The most common are the following;
- Hire purchase or finance
- Bank overdrafts
- Rent on office or shop premises.
A personal guarantee has nothing to do with the company as it is personal. The lender can get a charge over your assets so that in the event of going to court they can get their money back.
So what can we do to help you if you are worried?
First of all you need to check all the paperwork as it is possible that the guarantee is not valid. In addition it is also possible that the lender is not aware that they have a guarantee in place. Quite often a PG is just added on as extra security but it is not always done as a matter of course.
Perhaps the most important thing we can do is try and ensure that the guarantee is not called in. I.e. can we find a way to save your business? If the business is not viable and has to go into liquidation then we can help you talk to the bank, or to however has insisted on a guarantee, and try and come to some sort of settlement.
It is common practice for the commercial leases to be secured by way of personal guarantees as a new business moving or a new shop is seen as quite risky. This is even if a large deposit has been received. In the case of leases to partnerships sometimes the landlord will look for personal guarantees from each of the partners. If your business is behind with the rent then you must act as lease obligations can be bound into a company voluntary arrangement which can mean you can vacate the property. It may be possible to assign the lease to another operator to ensure that you are not on the hook for the remainder of the rent.
Talk to us for more information. You can call and talk to Keith anytime on 07584 583884