As a company director, you may be called upon to sign a directors personal guarantee when the company takes out a loan or enters into a commercial leasing agreement. If the company fails to meet the terms of the agreement, this guarantee may be activated and you will become personally responsible, but there are some occasions when the guarantee is unenforceable.
What action should I take if a directors personal guarantee is called upon?
The first step should be to seek independent legal advice. By searching online, you will find companies such as Parachute Law who will provide information from an experienced solicitor. This service can even take place by video call, if meeting in person is not convenient.
Remember that as long as the directors personal guarantee is signed by both parties, it will normally be enforceable. Even if the director resigns or closes the company, the other party can write to you requesting the guarantee is met and your personal assets are now at risk.
When is a directors personal guarantee unenforceable?
Typically, a lender or commercial landlord will ask for a directors guarantee if they deem the agreement between themselves and the company carries an element of risk. For example, if the company has a poor credit history or insufficient funds or revenue.
There are however, some occasions when the guarantee may be deemed unenforceable, such as:
The director was misled during negotiations . Key information has been omitted . Part of the terms of the guarantee are illegal . The guarantee has not been properly executed . The lending facility has changed . A condition of the contract has not been met . The statute of limitations has passed . The terms of the guarantee are unfair or unclear
If you believe that any of the above breaches have occurred, you will need to act swiftly. First of all, seek independent legal advice as suggested above and contact your lender or the commercial party who signed the agreement which includes the guarantee. Remember, you will need firm evidence for the guarantee to be voided.
