Directors personal guarantee – Debt Collection Action

Directors Personal guarantee and Debt Recovery

Limited Company Directors can routinely be required to provide a Directors personal guarantee. This is often used when securing a loan or various financial arrangements. In the event that the Limited Company goes into liquidation, the Director can be held personally liable for the debt.

These are not used where the Business owner is a sole trader that owes money or self employed and not been paid etc

In this article we will explain Directors personal guarantee and the enforce-ability from a Debt Collection Agency perspective.

What exactly is a Directors Personal Guarantee?

Directors’ personal guarantees are legal contracts commonly used to guarantee credit and finance for a business for which the respective Director is owner of. The use of Directors personal guarantees are not limited to this. They can also be used for high stake deals involving new Limited Companies.

In a fit and proper guarantee, the guarantor promises the lender/other party that the guarantor (the Director) agrees to be personally liable for any sums involved in the event that sums due are not paid.

When a Business owner signs a director’s personal guarantee it is often called ‘piercing the corporate veil’. This means that in the case of the Limited Company becoming insolvent, the Director becomes personally liable for any debt.

The impact of liquidation on a Directors’ personal guarantee

Liquidation of the Limited Company will likely mean the guarantor has the right to call upon the personal guarantee.

If the debt outlined within the personal guarantee agreement is paid in full via the insolvency process , this will end the matter therein. However , if it is not paid, this will place the liability for sums due with the director personally.

However, it is important to examine the specific terms of the personal guarantee contract if you are in any doubt.

Can Directors Get Out Of A Personal Guarantee If the Business goes into liquidation?

In the event of the Limited Company entering liquidation, the creditor should send a letter to the Director stating their payment terms.

Following this, the Director will need to pay within the stipulated time frame. If they do not, then the creditor has three options:

• Professional Debt Collection action to recover monies
• Commence legal proceedings via a law firm
• petition for bankruptcy using a solicitor

Very often, sums owed for a Directors personal guarantee can be vast. Professional and direct Debt Collection action can have the desired effect. This can result in goods being seized or a charging order placed on their assets and property with an order for a forced sale.

Working with a Debt Collection Agency or a debt collection solicitors can be different dependent of the firm in question.

How Enforceable is a Directors Personal Guarantee?

Normally, as a carefully prescribed and fit for purpose legal document, personal guarantees are said by lawyers to be one of the most enforceable contracts in common usage. Whilst there is no no template for such, a well drafted Directors’ personnel guarantee will ensure the right to claim payment directly from the director. Banks commonly use Directors personal guarantees with great success,

Can somebody dispute a Directors personnel guarantee?

Assuming the terms stated in the personal guarantee contract are correct and proper, it would be extremely difficult for the Director to put up reasonable objectives as to why they should not pay. Of course there will be grumbles but it is what it is. A Directors Personnel guarantee is enforceable under the law and should absolutely be exercised where necessary.

Recovery of a Directors Personal Guarantee

If you have a guarantee of payment from a Company Director and the Limited Company has gone in to liquidation or ceased to trade, speak to our experts today. We can advise you on the best Debt Collection action you can take to ensure you get paid what you are rightfully owed.

Is Debt Collection suitable for a Directors personal guarantee?

Absolutely. We have helped many Companies and individuals recover debt from Directors under the Directors Personal guarantee. Speaking with one of our Debt Collection Experts today will advise you.