UK · EU · US · InternationalSigning a personal guarantee: what you are actually agreeing to
Short answer: you are agreeing that if the company does not pay, the lender can come after you personally, and in most standard forms that exposure is wider and longer lasting than directors expect.
All monies means all monies
Many guarantees are not limited to the facility in front of you. An all monies clause covers everything the company owes that lender, now and in the future, including facilities taken after you signed and possibly after you resigned as a director.
Joint and several is not shared
Where two or more directors guarantee, joint and several liability means the lender can pursue any one of you for the entire debt. Recovering a share from your co directors is your problem, not the lender's.
The family home
Where the guarantee is supported by a charge over property, or where your spouse signs a consent, the exposure moves from your income to your house. That is the point at which independent advice stops being a formality.
Why the lender insists on independent advice
Following the House of Lords in Royal Bank of Scotland v Etridge (No 2), lenders take steps to protect the security against later claims of undue influence, and a solicitor's certificate is the standard mechanism. The adviser must be independent of the lender and of the borrower, which is why the certifying solicitor cannot be the company’s own solicitor. We do not provide independent legal advice certificates; where you need one, instruct a solicitor who offers that service.
What to negotiate before signing
A financial cap, a term limit, release on resignation, an obligation on the lender to pursue the company first, and removal of any charge over the family home. Not all will be conceded, and knowing which to push is what the advice buys you.
Common questions
Can I limit a personal guarantee?
Often yes. A cap on amount, a time limit and release on resignation are all negotiable, particularly before the facility is agreed.
Does resigning as a director end my guarantee?
Usually not by itself. Most guarantees continue until formally released in writing by the lender.
Why do I need a separate solicitor?
So the advice is independent of the borrower and the lender. That independence is what makes the certificate worth anything.
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