Tax and Management Accountant
SP Consultancy LLP
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Personal Guarantees on Loans

Personal Guarantees on Loans

Does anyone have any pointers to where I can get information on Directors liability when providing personal gurantees and the implications if a Director retires, who was party to this, or the company goes into liquidation or bankruptcy?

Who is still liable, and to what extent?

What insurances are avaialable to cover this gurantee by the parties?

I am currently awaiting details of the loan and all the legalities that were agreed at the time it was taken out.

Judith Paine


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19th Apr 2006 09:41

Terms Of guarantee
Thank you....I think the best thing is to get a copy of that agreement and then I can see what the situation is, rather than guessing.

As David said, maybe just changing lender, and negotiating better terms may suffice to give breathing space to trade through the situation.

I would still appreciate any other comments though from all you legal eagles out there!

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18th Apr 2006 17:11

Bank standard forms


If the guarantee was signed on a standard form from the bank then it is likely to be fairly watertight. Normally the bank will suggest a director take his own legal advice before signing.

There are a number of ways to bring the liability to an end. One is for the company to move to a different bank. Another is for the company to pay off the borrowing.

Short of that it gets a bit more complex.

If the director retires from the company and gives notice to 'end' his guarantee the effect is to cap his liability at the level at which it stood when he retired. The retirement does not extinguish the ongoing liability though.

If there is an overdraft then the turnover in the current account might (or might not) serve to reduce the liability over time (in connection with the overdraft - but not I think in relation to a loan). This is a legal point on which greater brains than mine should advise you.

From memory I do not think the liability ceases on the individual's death either - but I may be wrong about that!


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