A personal guarantee is a guarantee by an individual to cover or indemnify a debt of a corporate entity if the company isn’t able to pay it back. Personally guaranteeing debts can be risky, but it can provide benefits, such as showing confidence to lenders and securing a loan.
Unfortunately, no. However, there are steps you can take to mitigate the risk and consequences.
1. Take Out Personal Guarantee Insurance
Personal Guarantee Insurance (PGI) exists to protect the guarantors’ assets when they are at risk from a liquidating company. Generally speaking, these insurances are expensive, but they can cover up to 70% of the net liability.
2. Renegotiate the Contract
When using the personal guarantee, you can set limits with the investor to restrict your consequences. This may be difficult, but you can:
If a personal guarantee has been called in, there are a few options you can take, though they should be assessed carefully.
Go into an Individual Voluntary Arrangement (IVA): This is quite common. An IVA can spread the cost over 3-5 years and even write some of the debt off. However, the downside is that your personal credit score will be very poor.
Go Bankrupt: This is a worst-case scenario and should only be considered after all other options have been assessed. When you go bankrupt, your liability for all debts is discharged. Remember that this is only for personal bankruptcy; a company going into liquidation does not eliminate personal guarantees.
If you are trading as a sole trader rather than a limited company, you are personally responsible for all the debts of the business. Bankruptcy will be the only way to discharge these. That’s why it’s important to get limited! Yes being a soletrader has less paperwork but once you need someone else to do the financials then that is a good sign to set up a limited company!
For further guidance and expert advice, contact us today on
0800 9700539
Written ByRobert Moore
Marketing Manager
Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.
Rob is now working with the Board at RMT KSA to develop strategic marketing programmes to support the business plan and drive more company rescues.
