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For insolvencies that commence on or after 1 December 2020, certain HMRC debts will have preferential status ahead of the floating charge holders. A floating charge holder is typically a lender who often requires a personal guarantee by the director(s) to supplement the security. We expect to see a significant increase in claims on director personal guarantees given that lenders will now receive a smaller recovery following a company’s insolvency.

In part two of our companies in crisis Q&A series for company directors, we talk you through what you should do if you have signed a personal guarantee to your company that then becomes insolvent.

It’s likely that you will be pursued by the lenders to personally pay back the sums you have guaranteed. It is important that you:

  • Check the validity of the guarantees – were they properly executed, have they been terminated or changed since they were entered, do they apply to the sums the lender is now seeking to recover?
  • Check that the guarantee is enforceable – some guarantees allow the lender to elect to pursue you instead of the company as soon as an invoice is raised, others require the lender to complete a process with the company before it can claim from you.
  • Speak with the lender as early as possible to try to reach a settlement.

It is important that you don’t:

  • Cause the company to pay debts to reduce your personal liability under the personal guarantee in preference of other debts
  • Ignore the lender.

To watch part one of our companies in crisis series, I am concerned for the future of my company because of Covid-19. What steps should I take? please click here. 


The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.