The lender is calling in a personal guarantee I signed four years ago, and I cannot remember what I agreed to.
A personal guarantee turns a company debt into your house. Most are enforceable, but far fewer are enforceable for the amount demanded, against the person named, on the terms claimed. We establish what you actually owe before anybody negotiates it. The demand almost never arrives alone. It usually follows a period in which the company has been struggling, correspondence has been handled by whoever had time, and something has already been said that will be quoted back later. The first job is to stop that, take the correspondence over, and find the instrument itself. It is surprising how often nobody in the business has a signed copy.
Dinmore Bell acts for directors and shareholders facing personal guarantee claims, establishing what was actually signed, what it secures and whether the sum demanded is right before any negotiation begins. It acts in a business capacity only. It does not conduct litigation; where proceedings are issued, litigators are instructed and controlled.
How we own it
What you actually signed
The instrument itself, its execution, whether it was properly witnessed, what it secures, whether it is capped, whether it survives the facility it was given for, and whether later variations discharged it. A surprising number fail on one of these. The drafting decides almost everything. An "all monies" guarantee secures everything the company owes that lender, now and in the future, which means borrowing taken years after you signed and possibly after you stopped paying attention. A guarantee expressed to bind you "as principal debtor" removes the protections a guarantor would otherwise have, including the right to insist the lender pursue the company and its security first. Most modern documents also contain an indemnity running alongside the guarantee, so that a defect in the underlying debt does not release you. Execution is worth checking properly rather than assuming. Guarantees are frequently signed in a hurry, at the end of a completion, sometimes in counterpart and sometimes by a director signing for a spouse or a co-director who was not in the room. A deed that was not validly executed, or a signature obtained without the authority claimed, changes the conversation entirely.
The defences worth running
Misrepresentation, undue influence, failure to advise, non-compliance with the lender’s own process, and quantum, because the sum demanded frequently includes amounts the guarantee does not cover. We assess these on the documents before responding. Some of these are stronger than their reputation. Where a spouse or a non-executive was asked to sign for a business they had no part in running, the lender’s own procedures on independent advice become material. Where the guarantee was given for one facility and the lender later restructured the borrowing, the question is whether the variation released the guarantor or was authorised by the drafting. Where security was realised, the question is whether it was realised properly and credited correctly. Quantum is the least glamorous and the most productive. Demands routinely include default interest at a rate the guarantee does not carry, costs that were never contracted for, and balances from facilities outside the guarantee’s scope. Reducing a demand by a quarter before any argument about liability changes the shape of the settlement that follows.
The negotiation
Most guarantee claims settle, and they settle on the strength of the first response. We own the correspondence, run the negotiation, and structure the settlement: instalments, releases, and the wording that stops the same debt returning. The first reply sets the tone for everything after it. A reply that concedes the sum and asks for time invites an aggressive schedule. A reply that sets out, precisely and without heat, which parts of the demand are not covered by the instrument and which facts the lender appears not to have, produces a different negotiation. Lenders are commercial. They are weighing recovery against cost and time, and a guarantor who plainly has read the document is a different prospect from one who has not. Structure matters as much as number. A settlement that discharges the guarantee but leaves the underlying company debt alive can come back through another route. A settlement paid in instalments without a clear release on final payment leaves you exposed for the whole sum if a payment is late. We write the release, rather than accepting the lender’s first draft of it.
Co-directors and joint liability
Where two or more directors signed, the guarantee is almost always joint and several. The lender can pursue any one of you for the whole amount and will usually pursue whoever looks most able to pay, which is rarely the person most responsible for the borrowing. The right of contribution between guarantors exists, but it is a claim you have to bring yourself, at your own cost, against people who may by then have nothing. That is a poor position to discover after settlement. We deal with contribution at the same time as the lender, rather than after, and where the other guarantors are still solvent and cooperative a coordinated response is usually cheaper for everybody than three separate ones. Where the guarantors’ interests have diverged, and they often have, we are clear about which of you we act for and make sure the others take their own advice. That is a question of professional footing, not of tactics.
Landlord and supplier guarantees
Not every guarantee is a bank’s. Commercial landlords and trade suppliers take them too, and they behave differently. A lease guarantee is usually tied to the term rather than to a sum, and can cover rent, service charge, dilapidations and reinstatement for the whole remaining period. On a ten-year lease of a mid-sized unit the exposure is frequently larger than the bank facility everybody worried about. Assignment does not automatically end it: depending on when the lease was granted and how the documents were drafted, an outgoing tenant can be required to guarantee the incoming one, and the original guarantor’s position turns on detail. Supplier guarantees hide inside credit application forms. They are short, they are signed by whoever opened the account, and they are frequently unlimited in time and amount. When a supplier relationship ends badly, that form is the first thing their credit team finds and the last thing the business remembers signing.
Before you sign the next one
The work is very much cheaper before signature than after demand, and the three things worth asking for are asked for far less often than they are granted. A cap, expressed as a figure rather than as a share. A time limit or a defined release trigger: a guarantee that falls away once the company has met an agreed covenant for four consecutive quarters, or once the facility is repaid below a stated level. And a release on a change of control or a permitted assignment, so that leaving the business actually means leaving the liability. We also keep a register of what a client has guaranteed, because the commonest failure is not a bad negotiation. It is a founder who genuinely does not know how many guarantees are outstanding, who else is on them, or which one covers the lease. That list takes an afternoon to build and it is the difference between managing an exposure and discovering it.
Where specialists come in
We act for directors and shareholders in a business capacity. Where a guarantee sits behind a regulated consumer credit agreement, or the guarantor was not acting in the course of a business, different protections apply and we instruct specialists. We do not conduct litigation and have no rights of audience; where proceedings are issued we instruct and control litigators and counsel, hold the budget, and remain accountable for the outcome.
Sectors we run this for
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- Does resigning as a director end my personal guarantee?
- No. A guarantee is a separate contract with the lender and ends only on written release or discharge of the secured liability. Resignation, a share sale and handing over control do not release it.
- What does an "all monies" guarantee cover?
- Everything the company owes that lender now and in the future, not only the facility you signed alongside. Later borrowing from the same lender is usually caught without any further signature from you.
- Can the amount demanded be wrong?
- Frequently. Demands include default interest at rates the instrument does not carry, costs never contracted for, and balances from facilities outside its scope. Quantum is checked before liability is discussed.
- Can the lender come after me before pursuing the company?
- If the guarantee is drafted on a principal debtor basis, yes. That wording removes the requirement to exhaust the company and its security first, and it is in most modern bank documents.
- What if my co-director signed the same guarantee?
- Joint and several liability lets the lender recover the whole sum from either of you. You then have a contribution claim against the other, which you must bring yourself and which is only worth what they can pay.
- Do you go to court on guarantee claims?
- Dinmore Bell does not conduct litigation. Where proceedings are issued we instruct and control litigators, and we stay in charge of strategy, correspondence and settlement throughout.
- How quickly do I need to respond to a demand?
- Quickly, but not immediately. Demands carry short deadlines that are usually negotiable; what is not recoverable is an unconsidered reply that concedes a point. Acknowledge, ask for time, and read the instrument first.
- Can a guarantee be negotiated before signing?
- Yes, and it is attempted far less often than it succeeds. A cap, a time limit or a release trigger are all routinely available on smaller facilities if raised before the money is drawn.