Personal guarantees and company insolvency
A personal guarantee (PG) turns a company debt into a personal debt. When the company enters administration or liquidation, the beneficiary — usually a bank, landlord or trade supplier — pursues the director directly. The PG is not extinguished by the insolvency; it is triggered by it. Most PGs settle for 50–70% of the demand when the director engages early and shows realistic means. This guide sets out the enforcement timeline, the Etridge protection, IVA and bankruptcy routes. Author: Chris at Sell Ltd.
Enforcement timeline
Company enters administration. Bank issues demand letter under the PG for the full outstanding balance.
Reservation of rights, request for statement of affairs, initial settlement discussion.
Bank instructs solicitors. Claim form issued at the High Court (or County Court if under £100k).
Defence, disclosure. Most settlements happen here — cheaper than trial for both sides.
If no settlement, summary judgment or trial. Charging orders and orders for sale follow judgment.
Enforcement — assets, income, property. Bankruptcy petition possible if unpaid judgment >£5,000.
Settlement percentages — what actually settles
Banks settle for less than 100% when they see the alternative is a slow, expensive enforcement with an uncertain recovery. The three factors that move the number: how quickly you engage, how honestly you disclose personal means, and whether you can pay in a single lump sum.
Modest means, strong Etridge or misrepresentation defence, paid in 30 days.
Co-operative director, realistic personal statement, lump sum in 60 days.
Silent director with visible equity in a home; bank has a security charge as well as the PG.
Red flags to raise with your solicitor
Your spouse or partner co-signed without independent legal advice — Etridge (2001) may set the guarantee aside.
The lender extended credit substantially after the PG was signed without your consent — arguable discharge under the rule in Holme v Brunskill (1878).
The bank promised orally that the PG would 'lapse after two years' — collateral warranty or misrepresentation claim.
The security wording is boilerplate 'all monies' — you may not have understood scope; combined with a lack of advice, this argues undue influence.
The company already had a fixed and floating charge over the same assets — the bank may need to enforce the security first before pursuing the PG.
The PG amount claimed exceeds the cap in the signed document — check the schedule carefully.
Related
Frequently asked questions
What is a personal guarantee (PG)?
A personal guarantee is a contract in which an individual — usually a company director — promises to pay a company debt if the company defaults. PGs are commonly demanded by banks for overdrafts and loans, by landlords on commercial leases, by asset-finance houses, by trade suppliers on credit accounts, and by HMRC for time-to-pay arrangements involving new companies. The PG survives the company's insolvency: the beneficiary can pursue the individual personally.
Does the company entering administration cancel my PG?
No. That is the point of a PG — it exists precisely to give the lender a personal claim when the company cannot pay. Administration or liquidation triggers PG enforcement, not extinguishes it. The insolvent company still owes the debt, and you as guarantor still owe your promise to pay it.
How quickly will the bank call the PG?
Usually within days of appointment, sometimes hours. Modern PG wordings allow the bank to demand payment 'on demand' after an event of default. The bank issues a formal demand letter, followed 14–28 days later by proceedings if you have not paid or engaged. Immediate legal advice is essential — options narrow fast.
Can I negotiate the amount?
Yes, often significantly. Banks want cash certainty; a full-scale enforcement action against a director can take 12–24 months and cost tens of thousands in legal fees. A settled lump sum of 50–70% is a common outcome for a co-operative director with realistic personal means. Bring evidence: statements of affairs, valuations, joint-owner considerations for any home.
Is my house at risk?
It can be, but not automatically. A PG is unsecured unless the lender also took a legal charge over your property. If you signed a charge (a 'second charge' behind the mortgage), the property is directly at risk. If not, the lender must obtain judgment, then apply for a charging order and, in most cases, an order for sale — which the court can decline where children live in the property or the co-owner did not consent.
What happens if my spouse co-signed?
Both signatures are enforceable, but the case of Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44 requires banks to ensure a non-owner co-signer received independent legal advice about the risk. If the bank failed to follow the Etridge protocol, the guarantee can be set aside for undue influence. Ask for the file — the advice certificates should be there.
Do I have any statutory protection?
Yes, for regulated relationships. Consumer Credit Act 1974 remedies (unfair-relationship provisions in ss.140A–140C) can apply to smaller directors' PGs. The Consumer Rights Act 2015 catches consumer guarantees. Business-to-business PGs get less protection, but common-law doctrines (undue influence, non est factum, misrepresentation) can still bite.
Can I settle a PG for less through an IVA?
Yes. An Individual Voluntary Arrangement (IVA) is a formal proposal to your creditors — including PG holders — to pay a defined portion over 3–5 years. It requires 75% by value of voting unsecured creditors to approve. If accepted, the balance is written off on completion. IVAs are administered by licensed insolvency practitioners and are recorded on the Insolvency Register.
What about bankruptcy?
Bankruptcy is a last resort. It writes off unsecured personal debt (including PGs) after 12 months, but you lose control of assets above the bankruptcy threshold, may be subject to an Income Payments Order for up to three years, and face director disqualification effects. A first-charge mortgage on your home is not automatically lost, but equity above ~£1,000 will be captured by the trustee.
What is 'directors' PG insurance'?
A niche product from specialist insurers (Purbeck, Todd Doorstep, Markel) that reimburses a director up to a defined limit if a PG is called. Premiums typically run 3–5% of the guaranteed sum annually. It is worth exploring at the point of taking new credit, not when insolvency is looming — insurers underwrite carefully and will not cover a company already in distress.
Move fast. Chris at Sell Ltd points directors to specialist PG-defence solicitors and insolvency practitioners who can preserve settlement leverage before proceedings issue.