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A simple answer for this is yes if you have signed a personal guarantee on any loans for a limited company, then yes, the very nature of a personal guarantee is that the signator is personally liable for the debts if the company cannot commit to them any longer.
It is standard practice that a company director of a limited company may be asked to sign a personal guarantee as security or assurance to the lender for company borrowings as this minimises the risk involved to the lender. However, signing a personal guarantee, whilst sometimes essential in helping a company, needs to be given due consideration and correct advice should be obtained before doing so as there can be serious repercussions for the individual should the company become unable to fulfill the terms of the loan.
If a company begins to experience financial issues or is showing signs of financial distress then this could be a worrying time for a director as the possibility of personal assets becoming exposed is a very real situation.
A lender may be able to take a charge over a property/ asset so that they can recover the debt in the event that the company or director cannot pay.
It is worth mentioning that paying creditors that have a personal guarantee before creditors that do not have such security can be considered as paying a preference.
It is a reality which many have come to learn when businesses are in financial difficulty the lender will pursue any personal guarantees to recover a debt owed. Directors cannot assume that any debt which is associated with the business is wound up after the business enters liquidation. Personal guarantees are personal and in fact, have nothing to do with the company. Bankruptcy can become a real possibility and lenders might still pursue individuals for payments long after they’ve stopped working as a director of a particular company.
Loan Sales and Vulture Funds
With many major Banks selling off their loan portfolios, those who signed guarantees on business loans are being pursued aggressively from vulture funds. Where a secured business facility has been issued to an individual(s) Partnership, the subject Lender or vulture fund will work through the sale of any security held in order to seek to reduce the balance owing. Once this has been completed, however, the guarantor is fully exposed and can be pursued for the crystallised shortfall, up to and including Bankruptcy in which case personal assets can be at risk.
It is important to note at this stage and any before or thereafter, there are options.
Are Personal Guarantees Negotiable?
Negotiating in relation to a Personal Guarantee is most possible when broached in the correct way and with the right presentation, however, is very rarely straightforward. That is why here at Bell & Company we assess each case on its own merits and devise strategies based on the best possible situation for our client.
Our experts specialise in dealing with personal guarantee negotiations for clients and will fully analyse the position of the client in order to formulate a tailored strategy before entering into dialogue with the lender. This includes a full review of the business, client, personal and business assets to gain an overall view of where the client is, what is important and where they want to be.
Getting the right advice
There is most definitely scope for negotiation from a personal guarantee however the key is to be proactive rather than reactive and to address the situation before it is brought to you.
Whatever your company’s financial position might be, negotiations around personal guarantees are best conducted as early on as realistically possible, regardless of whether your company is set to become insolvent or not. It is highly advisable to seek impartial advice from a professional and reputable firm when dealing with issues as complex as these.
If a personal guarantee is causing you concern, distress or indeed, you are worried about potential ramifications for what may seem like a ‘hypothetical’ situation now, call us today for independent and impartial advice where our strategists will talk you through your options. Telephone 02895217373 or email [email protected].