As a Director/Shareholder, Do I Have to Give a Personal Guarantee?

A personal guarantee is personal to the individual signatory. Often Directors and Shareholders in small to medium size companies will have dual roles. Generally, a person cannot be forced to give a personal guarantee (or ‘PG’). They should only do so having obtained advice on their position. As specialist litigation solicitors, we do not give advice on personal guarantees, but tellingly we do litigate these contracts where something goes wrong. In a commercial sense, it can be the case that a Shareholder does feel compelled to provide a PG. Classic examples include a Director/Shareholder being asked to sign a PG over a company overdraft, or in the case of an SPV property investment company, a Shareholder might be asked to PG lending or development finance. That finance might be technically for the benefit of the company, but the ultimate aim is for the company to generate profit and for that profit to be distributed via dividends. Lending may not be obtainable from lenders without a PG. If a Director/Shareholder has agreed to provide a PG but then reneges to do so that lead to deadlock and/or claims by Shareholders against one another. Care should be taken, and independent legal advice should be obtained, before an individual enters into a PG not least as a guarantor (or guarantors) who sign a personal guarantee can be personally liable for all monies, interest and costs if the company is unable to meet the terms of any loan or credit agreement referred to within the guarantee itself.