What happens to a director’s guarantee if the company liquidates?

If you have signed a director guarantee, it is important to know what happens if the company you have signed for goes into liquidation.

How are assets seized when a company goes bust?

When your business goes into liquidation, creditors seek to seize assets from the business. This means your personal guarantee or directors guarantee becomes enforceable immediately by becoming ‘crystallised’. This means the responsibility for the outstanding business debt transfers from the now-bankrupt business to you as the director who personally signed the guarantee.

As a result of this, creditors can – and very likely will – come after your own assets to recover the sums they are owed.

What does this mean for me, the director?

This depends on the specifics of the director guarantee you signed, which is just one reason why you should always seek advice from a solicitor such as Parachute Law before signing a guarantee of this kind.

If this situation occurs, you should contact your solicitor and the creditor in question to find out:

– Whether there is a liability cap in the guarantee that limits the amount for which you are personally liable.
– Whether there is a timeframe for the creditors to enforce their debt recovery.
– Whether there are any clauses that allow you to renegotiate the debt.
– What the enforcement conditions are, and whether there is any legal scope to cancel the guarantee.

It is vital to seek legal advice at this point so that you can pursue any open courses of action that might be available to you for your situation. By doing so, you may be able to limit the amount for which your business creditors can come after your own assets and protect your own wealth as far as possible.

Before deciding whether to sign a directors guarantee, you should always seek legal advice. This is a huge and complex area of law and one that involves a high degree of risk for directors who sign this type of legal document.