Nov 4
A personal guarantee survives your company’s liquidation. When a limited company can’t pay its debts and enters liquidation or administration, the lender, landlord or supplier who holds your guarantee can usually demand payment from you personally, often straight away, without waiting for the liquidator to finish. The company’s debt may eventually be written off, but your promise to pay it is a separate contract. In practice, you have 4 broad options: pay in full, negotiate a settlement, agree a repayment plan, or deal with it through a formal personal insolvency process such as an individual voluntary arrangement (IVA) or bankruptcy. The earlier you take advice, ideally before the company enters a formal process, the more of those options stay open.
The rest of this guide explains when a guarantee is called, how much you could really owe, what lenders will negotiate on and the special rules that apply to government-backed loans.
Yes. Liquidation ends the company, not your personal liability. A personal guarantee is a contract between you and the creditor, so it sits outside the liquidation entirely. The creditor can claim in the liquidation for whatever the company owes and pursue you under the guarantee at the same time, and closing or dissolving the company does not release you.
This catches a lot of directors out. Limited liability protects you from the company’s debts in general. A personal guarantee is the exception you agreed to, usually when the company first borrowed money, took on a lease or opened a credit account.
It also follows you. Starting a new company does not end a guarantee you gave for the old one, and nor does selling your shares or resigning as a director, unless the creditor formally released you.
Most guarantees can be called as soon as the company defaults or enters a formal insolvency process. Liquidation, administration and the appointment of a receiver are usually listed as events that trigger the creditor’s right to demand payment, along with missed payments and other breaches of the facility.
The creditor is not obliged to wait for the liquidator to sell assets or pay a dividend. Some lenders do wait, because they want to see what the liquidation recovers before deciding how hard to push you. Others send a formal demand within days.
What usually follows is a written demand under the guarantee. If that isn’t met, the creditor may issue a statutory demand or start court proceedings to recover the money, and an unpaid debt can ultimately lead to a bankruptcy petition. None of that is automatic, and there is normally time to engage before things escalate. Ignoring the letters is what tends to remove that time.
Directors often remember the bank guarantee and forget the others. It’s worth listing every guarantee you’ve signed before you speak to anyone, because each creditor will behave differently.
| Creditor | Typical guarantee | What to check |
|---|---|---|
| Bank or lender | Loans, overdrafts and credit cards | Whether it is capped, and whether it covers all monies owed or just one facility |
| Asset finance company | Vehicles, plant and equipment | How much the asset sells for, and whether you are liable for the shortfall |
| Invoice finance provider | Guarantee or indemnity against client debts | Liability for unpaid or disputed invoices once the facility is closed |
| Landlord | Rent and other lease obligations | Whether it ends on assignment, and how long the liability runs |
| Trade supplier | Credit account terms | Whether you signed a guarantee buried in the credit application |
| Government-backed lender | Scheme facilities such as CBILS or the Growth Guarantee Scheme | Scheme rules that may limit what can be recovered from you |
Supplier guarantees are the ones people most often miss. They are frequently a single clause in a credit application signed years ago.
Not all business loans carry the same personal exposure. If your company borrowed under a government scheme, the scheme rules may cap or exclude what the lender can recover from you.
The British Business Bank’s CBILS guidance includes a worked example of the 20% cap. If a lender is demanding more than the scheme allows, that is worth challenging.
Be careful with mixed lending, though. A lender could take your home as security for a separate commercial facility provided alongside a scheme loan. The protection applies to the scheme facility, not to everything the bank lent you.
Your liability depends on the wording. A capped guarantee limits you to a fixed sum, often plus interest and the creditor’s costs of enforcing it. An uncapped “all monies” guarantee can cover everything the company owes that creditor, including facilities agreed after you signed.
If more than 1 director signed, the guarantee is usually joint and several. That means the creditor can pursue any one of you for the full amount, not just your share. It’s then up to you to recover a contribution from your co-guarantors, which can strain relationships quickly.
The amount the creditor actually pursues often depends on what it recovers elsewhere. If the bank holds a debenture over company assets, the proceeds of those assets usually reduce the debt first. An estimated outcome statement from the insolvency practitioner will show what the lender can expect to receive from the liquidation, and that figure matters in any negotiation.
Often, yes. Lenders are commercial. If you clearly cannot pay the full sum, many will accept a lower settlement or a payment plan rather than spend time and legal costs chasing money you don’t have. The strength of your position depends on your personal assets, income and how early and openly you engage.
Creditors usually want 2 things before agreeing a deal. The first is an understanding of what the company’s liquidation will return to them. The second is a full, honest statement of your personal assets, liabilities, income and spending. If the lender believes you are hiding assets, the conversation stops.
A realistic offer, backed by evidence, gives the lender a reason to settle. Any agreement should be in writing and should clearly release you from the guarantee once the agreed sum is paid. A verbal “we’ll take less” is not a release.
We often see directors wait until the lender’s demand arrives before thinking about the guarantee. By that point, the company’s assets may already have been sold and your negotiating position is weaker. Raising it while the company is still trading, ideally alongside wider company restructuring and recovery advice, usually leaves more room to manoeuvre.
Most personal guarantees are enforceable, so don’t build your plan around finding a loophole. That said, it is worth having a solicitor review the document, because a guarantee can sometimes be challenged.
Points a solicitor will typically look at include:
Challenging a guarantee is expensive and uncertain. It makes sense where there is a genuine issue with strong evidence, not as a delaying tactic.
This point is rarely explained. If you pay the creditor under your guarantee, you generally step into their shoes and can claim against the company for what you paid. In a liquidation, that means you may rank as a creditor and receive a dividend if there is money to distribute.
There is a catch. The creditor and the guarantor cannot both claim for the same debt. Until the creditor has been paid in full, it usually keeps the right to prove in the liquidation, and your claim waits behind it. If you settle for less than the full debt, check what happens to the creditor’s claim in the liquidation, as it affects whether you get anything back.
A personal guarantee is the most common way directors become personally liable, but not the only one. A liquidator has a duty to investigate the company’s affairs and the directors’ conduct.
| Risk | When it arises |
|---|---|
| Overdrawn director’s loan account | You owe the company money, which the liquidator can collect for creditors |
| Wrongful trading | You kept trading when you knew, or should have known, insolvency was unavoidable and failed to minimise losses |
| Misfeasance | Breach of duty, such as paying yourself or connected parties ahead of other creditors |
| HMRC personal liability | Specific cases such as certain tax avoidance, evasion or repeated insolvency involving tax debts |
| Director disqualification | Conduct found to make you unfit to act as a director |
Our guide to what directors must do when a company is heading towards insolvency covers these duties in more detail. Where transactions are disputed, an independent review by our forensic accounting investigations team can help you understand what the records actually show before the liquidator draws conclusions.
If the amount you owe is more than you can realistically pay or negotiate down, a formal personal insolvency process may be the most practical route. In Northern Ireland, England and Wales, the main options are an IVA or bankruptcy.
An IVA is a legally binding agreement with your creditors to pay what you can afford over a set period, supervised by a licensed insolvency practitioner. It can protect your home in some cases and avoids some of the restrictions of bankruptcy, but it needs enough creditor support to be approved. Bankruptcy writes off most debts but can affect your home, other assets, credit rating and some professional roles.
These are significant decisions. A licensed insolvency practitioner should review your whole position, company and personal, before you commit to either route. SCC’s insolvency practitioners in Northern Ireland can advise on both sides together.
The guarantee only becomes a crisis when the company can’t pay. So the best protection is spotting trouble early. The early warning signs of financial distress usually appear months before a lender calls in the facility.
In our experience working with UK and Irish SMEs, directors who act early tend to have more choices. A company with a viable core business may be able to refinance, restructure or use a company voluntary arrangement rather than liquidate. Be aware, though, that a CVA deals with the company’s debts and does not normally release you from a personal guarantee unless the creditor agrees. Our comparison of CVA, administration and liquidation explains how each route affects creditors.
Reliable forecasting helps too. Practical cash flow forecasting and SME support can show the pressure coming before covenants are breached. A review by our internal audit services team can tighten credit control and reporting, which also makes conversations with lenders easier. If your lender relies on audited accounts, keeping them on time and credible protects your standing when you need flexibility.
It’s also worth checking whether the company is owed money it hasn’t claimed. A valid R&D tax credit claim or overlooked tax refund can bring cash into the company and reduce the shortfall that ends up landing on your guarantee.
Yes. Liquidation does not cancel a personal guarantee, because the guarantee is a separate contract between you and the creditor. The creditor can claim in the liquidation and pursue you personally at the same time. It does not have to wait for the liquidation to end before demanding payment under the guarantee.
It can be released if the creditor agrees, usually as part of a negotiated settlement. It can also be dealt with through a formal personal insolvency process. In bankruptcy, a personal guarantee debt is normally treated like your other unsecured debts. In an IVA, it is included in the arrangement and dealt with on the agreed terms.
It depends on whether the guarantee is secured. If you gave the lender a charge over your home, it can enforce that security. If the guarantee is unsecured, the creditor would first need a court judgment and could then apply for a charging order. Some government-backed scheme loans exclude your main home as security.
No. Resigning or selling your shares does not release you from liability for debts the guarantee already covers. Some guarantees let you give notice to stop covering future lending, but only on the terms set out in the document. To be fully released, you normally need the creditor’s written agreement.
Yes. If you don’t pay a valid demand under a guarantee, the creditor can take legal action and, if the debt is large enough, present a bankruptcy petition. That’s usually a last resort for the creditor. Engaging early with a realistic proposal often prevents it from reaching that stage.
A personal guarantee doesn’t disappear when your company fails, but how you deal with it is often within your control. Knowing what you signed, what the creditor is likely to recover and what a realistic settlement looks like puts you in a far stronger position.
SCC’s Recovery team, led by licensed insolvency practitioner Rory Moynagh, advises directors across Northern Ireland, Ireland and the UK on both the company and the personal side of financial distress. If you are worried about a personal guarantee, contact our team for a confidential conversation about your options.
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