Being a director of a limited company means a director is not liable for the company debt.  Well, that is the theory anyway.

All too often at PBC we advise directors who have given personal guarantees for company liabilities (“PG”).  Sometimes they do not realise what they have done until after we have suggested they check out the documentation, while on other occasions a PG has been given when their company was under duress and the directors were desperate for financial support.

Having said this, the key question is whether that PG is enforceable or even a PG at all; just signing a credit agreement on behalf of your company does not mean you have given a PG.

The best advice that can be given is, when confronted by a request for a PG, a director takes independent legal advice beforehand.  It maybe the directors have no choice but to give a PG, but there are areas of mitigation, such as a cap on liability, for example.

The presence of a PG may, at times, influence directors to act contrary to their duty owed to company creditors when insolvency is a significant possibility, as the fear of the PG being called against them is a genuine concern.

At PBC we see this conflict between PG exposure and directors duties regularly and advise directors on the correct way forward, including where possible facilitating a means of settling the PG exposure if, indeed, the worst were to happen.  

If you need any advice or assistance on any corporate restructuring or insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 033150 (Milton Keynes), 01234 989150 (Bedford) or email to enquiries@pbcbusinessrecovery.co.uk. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.