Business is risky. That is why entrepreneurs choose to
do business in limited liability companies and limited liability
partnerships. But when lending to family/SME companies financial
institutions in particular usually insist on personal guarantees from the
company’s owner managers. Also increasingly larger trade suppliers
like builders merchants incorporate personal guarantees in their account
opening forms often without drawing that to your attention.
They do this to get greater security over the private asset of the directors and to tie directors in so they don’t walk away when the going gets tough. Most guarantees are joint and several which means the creditor can make demand and seek repayment from any and all of the principal lender or the guarantors and they do not have to wait to see if the company can repay first. This is the worst of all worlds for the personal guarantor because he/she may have no control over how the company’s assets are realised or the order in which creditors are paid by the company and simply has to pay under the guarantee and hope for the best. However, there are things you can do:
At McTear Williams & Wood we have helped countless numbers of directors negotiate settlements of personal guarantee liabilities. Financial institutions will very rarely pursue a director to bankruptcy and there is usually a deal to be done. Each negotiation is case specific but the maxim if you don’t ask you don’t get usually holds true.
In extreme cases you may need to way up going into a Debt Management Plan (“DMP”), an IVA or Bankruptcy. We can help with that too. Be very wary of day time TV specialist DMP and IVA specialists. They are mostly one trick ponies selling the service they have on the shelf and one size does not fit all. Talk to us before committing yourself.