The personal guarantee you signed and forgot

It was two pages at the back of a facility agreement, and nobody read it out. What it covers, why resigning does not end it, and the three things that can realistically be negotiated.

Problems, in order · Part of Outsourced General Counsel

Nobody signs a personal guarantee at a moment of calm reflection. It arrives at the end of a facility, a lease or a supplier account, usually on the day the money is needed, and it is presented as a formality.

It is not a formality. It is the document that converts a company debt into your debt, and the only one in the pile that reaches past the company and into your own assets.

What am I actually liable for?

Three phrases decide almost everything.

"All monies now or hereafter owing." This is the one that surprises people. You signed for a GBP 150,000 overdraft in 2022; the company later took invoice finance and an asset loan from the same lender, and the guarantee reaches all of it. Nobody asked you to sign again, because nobody needed to.

"As principal debtor and not merely as surety." This removes the protections a guarantor would otherwise have. It means the lender does not have to pursue the company first, exhaust its security, or tell you anything before demanding payment from you.

"Indemnity." A guarantee is secondary: if the company’s debt is unenforceable, so is the guarantee. An indemnity is a primary obligation that stands on its own. Most modern documents contain both, deliberately, so that a defect in the underlying debt does not release you.

A guarantee does at least have to be in writing. Section 4 of the Statute of Frauds 1677 has survived three and a half centuries and almost total repeal of the rest of the Act, and it still decides whether a promise to answer for another’s debt can be sued on at all:

In practice this rarely saves anybody, because lenders use written documents. It matters at the edges: an oral assurance, a guarantee signed by one director purportedly for another, an email trail that was never turned into a deed.

Does the guarantee end when I leave the company?

This is the single most common and most expensive misunderstanding. A director’s statutory duties end on resignation. A contractual guarantee is not a duty of office; it is a separate contract between you and the lender, and the lender was not a party to your departure.

On a share sale, the buyer will often agree to procure your release. "Agree to procure" is not the same as obtaining it. If the lender declines, you remain on the hook for a business you no longer control, secured by an all-monies clause that now covers borrowing you know nothing about. The only reliable positions are a written release at completion, or a deed of indemnity from the buyer that is worth something.

What about my co-directors?

You then have a right of contribution against the others, which is a claim you have to bring yourself, against people who may by then have nothing. The practical consequence is that the wealthiest co-director carries the group’s exposure.

A contribution agreement between the guarantors, signed at the same time as the guarantee, fixes this cheaply. Almost nobody signs one.

The landlord’s guarantee is a different animal

Commercial landlords take guarantees too, and they behave differently from a bank’s.

A lease guarantee is usually tied to the term rather than to a sum. It can run for the full remaining term, including rent, service charge, dilapidations and the cost of reinstatement. It does not necessarily stop on assignment: where the lease is granted after 1995, an outgoing tenant can be required to give an authorised guarantee agreement covering the immediate assignee, and the original guarantor’s position depends closely on how the documents were drafted.

The exposure on a 10-year lease of a mid-sized unit is frequently larger than the bank facility that everybody worried about. It is also the one people forget they gave.

What can actually be negotiated?

Three things, and they are available far more often than founders assume, because the person asking you to sign is following a template rather than defending a position.

A cap. A fixed maximum, expressed as a number, rather than the whole liability. Lenders resist this less than you expect on smaller facilities.

A time limit, or a defined trigger for release. A guarantee that falls away once the company has hit an agreed covenant for four consecutive quarters, or once a stated amount of the facility is repaid.

Release on assignment or departure. In a lease, a release on a permitted assignment to a tenant of equivalent covenant strength. On a facility, an automatic release on a change of control where the incoming owner gives an equivalent guarantee.

The moment to ask is before signature, when the lender wants the deal done. After a demand, you are negotiating quantum rather than terms, and the room is much smaller.

Where a specialist is needed

Where proceedings are issued on a guarantee, or where a bankruptcy petition follows a judgment, Dinmore Bell instructs and controls litigators rather than conducting the litigation itself. Where the matrimonial or estate position is engaged, that goes to the right specialist too.

What Dinmore Bell owns is everything before that point: reading the instrument, establishing what it secures and against whom, checking whether the sum demanded is actually covered, and running the correspondence and the settlement. Most guarantee claims are resolved on the strength of the first reply, which is why the work sits in directors’ personal guarantee disputes rather than in a courtroom, and why it belongs to a retained outsourced General Counsel who already knows what the business has signed.

The short version

Find the guarantees. There is usually more than one, and the one nobody remembers is usually the lease. Read what they secure, who else is on them, and what would release you. Then decide whether you would sign them again today.

That is a two-hour exercise on a quiet afternoon. It is a very different exercise after a demand letter.