The heading pretty much sums up my view of a director who grants a personal guarantee for company debts. I am possibly being a little harsh as giving a personal guarantee can sometimes be a non-negotiable term of contract or borrowing.
In the past I have seen directors who have guaranteed practically every supplier, making you question why they are trading under the vehicle of a limited liability company. Others sign personal guarantees unwittingly; only to discover what they have committed to after things have gone wrong.
Should you be considering signing a personal guarantee then take heed of a recent decision in the court of appeal. In the case of Mark Eugene White and Davenham Trust Limited [2010] EWHC 2748 (ch) Mr White sought to have a statutory demand that Davenham had served on him set aside on the basis Davenham were secured (against the book debts of a company in administration) so they had no right to pursue him for their outstanding debt. Mr White also argued the rate of default interest (44%) was extortionate.
In dismissing the appeal the Court of Appeal stated,
“It is clear and common ground that a creditor which has several remedies can choose which to enforce, at what time, in which order and in what way, being limited only by the proposition that it cannot recover more than is due to it on the debt with interest and costs by way of its several recovery procedures…”
Clearly, burying your head in the sand or simply thinking you can walk away and leave the problem for someone else to handle the issues only serves to damage any rapport and encourage the rights confirmed in the Davenham decision.
Should you be faced with a personal guarantee being pursued the advice must be that you seek independent professional advice without delay. Maintaining a clear and regular dialogue with the guaranteed company can help but an independent advisor can also look into the validity of the guarantee generally and assist you in reaching a mutual settlement rather than, like Mr White, staring down the barrel of bankruptcy.
Gary Pettit