Why is it important to take advice in connection with a personal guarantee?

A personal guarantee is a legally binding agreement entered into by an individual (known as the “guarantor”) to be personally responsible for the obligations or liabilities of another party (typically the “principal debtor”), should this party fail to meet their obligations.

If a guarantor fails to comply with their obligations under the personal guarantee, the creditor can take them to court to enforce the agreement. Therefore, it is vital that a guarantor understands precisely the implications and consequences of what they are signing.

Financial Responsibility:

• If you have agreed to be personally liable for a loan taken out by a business, it may be that the guarantee extends further. The inclusion of an “all monies” clause would make you liable for all money owed to the lender, not just that specific loan.

Discharging Liability:

• If you are thinking of leaving or selling a business, it is vital to ensure that you are discharged from any guarantee you have made for that business. Failure to do so could leave you liable for obligations of the business, even if you are no longer involved.

Guarantee of Performance:

• You may be guaranteeing that the debtor will perform certain non-financial obligations in the agreement, rather than simply just the repayment of debt. For example, a guarantee for a buy-to-let mortgage, where the purchaser (borrower) will be obligated to insure the property.

Personal Assets At Risk:

• By entering into a personal guarantee, a lender may have full recourse to your personal assets in the event of a default. Lenders could possibly ask for security over certain assets (such as your home) for further protection.

• The ultimate risk of a personal guarantee is if it is enforced against you then you could be forced into bankruptcy if you are unable to pay.

Joint and Several Liability:

• If you have given a guarantee alongside other guarantors, it may be that this was given with joint and several liability. This means that the lender could bring a claim against you individually, for the entire amount owed.

How can we help?

Due to the implications of entering into a personal guarantee, lenders usually will insist that any proposed guarantor obtains Independent Legal Advice, before entering into the agreement. This advice must be given by a solicitor who is independent of the transaction.

Lawson-West can provide Independent Legal Advice and will ensure that the risks, obligations and finer details of the personal guarantee are thoroughly explained to you.

We can also prepare personal and corporate guarantees if you require these to be entered into in connection with providing lending to a borrower.

If you would like support or assistance, or have any questions, then please contact Rob Flannagan on 0116 212 1033 or email rflannagan@lawson-west.co.uk

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