Electronic Signatures & Personal Guarantees: Are They Enforceable?

More often than not, a personal guarantee (PG) agreement will not require the guarantors to sign a physical contract in person. Most providers of finance will rely on electronic systems to send documentation and collect signatures.

Often people will ask questions such as “How do they know it is me signing?” or “Does it actually count as a signature?”. Unfortunately, it is more than likely that these questions will not be asked until after a director is facing personal liability as a result of a personal guarantee. So, is an ‘e-signature’ a valid way to sign a personal guarantee?

Legal Requirements When Signing a Guarantee

Through a combination of common law and case precedent, there are several conditions that must be met when a PG is signed. Some of the most important include:

• Guarantors must understand the nature of the document they are signing.
• All parties need to consult independent legal advice before signing (although you can choose to waive this right).
• Guarantors must not sign on behalf of other guarantors (this is fraud).
• Lenders must not mislead borrowers.

If any of the above are not followed, then your lender has not properly carried out their duties. In some cases, this can mean that a guarantee is unenforceable, or you are liable for less.

However, it is extremely difficult to prove this. Additionally, directors are held to a higher standard, therefore it is expected that you will have read and understood before signing. So, the “I didn’t know what I was signing” defence rarely works.

So How Reliable Are Electronic Signatures?

In the past, the validity of an online or electronic signature was doubted by many. It would have been common to sign and fax a contract to avoid any doubt. However, e-signatures are an established business practice and as such they are very hard to dispute.

Under UK law, it is widely accepted that electronic signatures are a viable alternative to traditional ‘wet’ signatures. In 2019, The Law Commission confirmed that e-signatures were recognised in the same way as traditional signatures. Although there may be some witnessing requirements, it is rare that this will invalidate a signature.

Many directors who have signed personal guarantees have tried to use an electronic signature as a loophole. Almost all have been unsuccessful. This will only work in cases where there has actually been clear fraud (e.g. someone signing with your knowledge).

Is Your Personal Guarantee Enforceable?

In 99% of cases, the answer is yes, your guarantee can be enforced. Your lender needs to have massively neglected their duties for this to be a reasonable defence. Even in these cases, the law tends to lean in favour of creditors.

If you think your personal guarantee may be unenforceable, it is important to consult personal guarantee specialists to establish your liability.

It is also important to recognise that in most scenarios, you will be liable for the full amount. In this case, it is even more important that you consider how you are going to deal with your liability. Experienced personal guarantee experts will be able to provide solutions to this very serious scenario.

If you are worried about a personal guarantee, Bell & Company can help you. Call us on 0333 305 4331, join our live chat or request a call back below to speak to a business specialist today.