Companies in crisis: I have signed personal guarantees to my company’s lenders but what happens if the company then becomes insolvent?

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. 

• Part one: I am concerned for the future of my company because of Covid-19. What steps should I take?
• Part two: I have signed personal guarantees to my company’s lenders but what happens if the company then becomes insolvent?
• Part three: How can I tell if my company is insolvent? 
• Part four: My company is receiving pressure from creditors but it can’t afford to pay what it owes. I think that my company is now insolvent, what options do I have?
• Part five: Should my company continue to trade if I know that it has no way of paying all its debts?
• Part six: If my company is placed into an insolvency process, how will this affect me?
• Part seven: What duties do I owe as a company director and do my duties change if the company becomes insolvent?
• Part eight: My company is due monies from several customers. What steps can I take?