Guarantees and Recovery
A personal guarantee can turn a dead end into a live recovery. Here is how guarantees work and why they matter to your clients.
In this guide
- Explain what a personal guarantee is in plain terms
- Understand how a guarantee can support recovery
- Recognise why the wording and signing matter
- See where guarantees fit alongside company debts
- Know when to refer clients to legal advice
6 min read
What a guarantee does
A personal guarantee is a promise by an individual — often a company director — to be personally responsible for a debt if the business does not pay. For a creditor dealing with a company, this can be significant: if the company has no assets, an unsecured claim against it may be worth little, whereas a guarantee can open a path to the individual behind it. In effect, it adds a second party who can be pursued.
Why it matters in recovery
Guarantees often come into their own when a corporate debtor is in trouble. A company can be wound up and leave creditors with nothing, but a guarantor with personal assets may still be pursuable for the debt. This is why a creditor's terms of trade frequently require a director's guarantee for credit accounts — it broadens the field of recovery beyond the company itself.
Wording and signing
The value of a guarantee depends heavily on how it is drafted and whether it was properly entered into. A guarantee that is vague, unsigned, or improperly obtained may be difficult to rely on. The scope matters too: what debts it covers, and whether it is limited or continuing. These are details worth getting right at the outset, not discovering at the point of default.
This is general information only and not legal advice. Whether a particular guarantee is enforceable depends on its terms and the circumstances, and clients should seek tailored advice.
For advisers
When a client extends credit to a company, it is worth asking whether they hold a guarantee, and whether it is sound. A well-drafted, properly signed guarantee taken at the start can be the difference between a recovery and a write-off later. Clients can refer a debt where a guarantee may broaden the options.
Key takeaways
- A guarantee makes an individual responsible if the business does not pay.
- It can rescue recovery where a corporate debtor has no assets.
- Enforceability depends heavily on wording and proper signing.
- Terms of trade often require a director's guarantee for credit accounts.
- Taking a sound guarantee at the outset beats discovering gaps at default.
Frequently asked questions
What is a personal guarantee?
A promise by an individual to be personally liable for a debt if the business does not pay. This is general information, not legal advice.
Why is a guarantee useful?
If a company cannot pay, a guarantor with personal assets may still be pursuable, which broadens recovery options.
Is every guarantee enforceable?
No. Enforceability depends on the wording, scope, and how it was entered into. Clients should seek tailored advice on a specific guarantee.
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