Directors are often required to sign as Guarantor for the obligations of a company but does this make an individual personally liable? In this video we will look at 5 things you need to know about director’s guarantees.
- Signing a director’s guarantee has vast legal and financial consequences. If the company is unable to meet its obligations, legal proceedings can be instituted against the director who signed as guarantor for the company. Legal costs can accumulate, judgment can be obtained against the guarantor personally, which can involve the seizure and selling of personal assets.
- As we have seen with the COVID-19 pandemic, no company is immune to financial distress. Personal guarantees should never be given lightly.
- Directors guarantees allow for effective recourse against non-compliant companies. If you supply goods or services on credit, ensure your businesses credit applications include valid guarantee clauses drawn up by a professional.
- Many guarantees allow for the registration of caveats over the real estate of the guarantor. These clauses are referred to as “Charging” clauses. Under the charging clause, guarantors give an interest in their property as security for the obligations owed by their company.
- As with personal guarantees, director’s guarantees generally have no time limit. Resigning as a director of a company does not automatically terminate the directors guarantee. Normally a release from the creditor is required and the creditor doesn’t have to agree to that
If you have any questions before you give a Director's guarantee, please contact us, we would be happy to assist.