Director's Guarantee: What It Means and What to Check Before You Sign
Advice for company directors asked to sign a personal guarantee for a loan, lease or supplier account, and for directors already facing a demand.
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A director’s guarantee (also called a director’s personal guarantee) is a legally binding promise by a company director to personally pay a company debt if the company cannot. It removes the protection of limited liability for that debt, so your home, savings and other personal assets can be pursued if the company defaults.
Lenders, landlords and suppliers often ask for one before dealing with a new or small limited company. The Insolvency Service’s guidance on personal guarantees is clear that you must fully understand the terms, including how much you are personally liable for, before you agree. Our solicitors review director’s guarantees, negotiate limits on your liability and advise directors who are already facing a demand.
What is a director's guarantee?
A director’s guarantee is a contract in which you, as an individual, agree to answer for your company’s obligation to a creditor. If the company fails to pay, the creditor can claim against you personally, up to the limit set out in the guarantee, or without limit if there is none.
Under section 4 of the Statute of Frauds 1677, a guarantee is only enforceable if it is in writing and signed by the guarantor or someone authorised by them. In practice, most director’s guarantees are signed as a deed, either as a standalone document or as a clause inside a loan agreement, lease or credit application.
The Insolvency Service describes three common forms:
- Secured: backed by a specific asset, usually a charge over your home
- Unsecured: based on your personal creditworthiness alone
- Joint and several: where several directors sign, each one can be pursued for the full debt, not just a share
When will a company director be asked for a personal guarantee?
Creditors ask for a director’s guarantee when the company alone doesn’t give them enough security. GOV.UK guidance notes this is more likely where the company is newly formed, has a short trading history, has a poor or no credit rating, or the amount involved is significant.
Common situations include:
- Business loans and overdrafts, including start-up finance
- Commercial property leases, where the landlord wants a guarantor for the rent and repairing obligations (see our commercial landlord and tenant service)
- Commercial mortgages on premises bought by the company
- Asset and vehicle finance, hire purchase and equipment leasing
- Trade credit accounts with suppliers
- Company credit cards
Types of director's guarantee and the clauses to watch
The wording of the guarantee decides how much you can lose, so these clauses matter more than the headline amount borrowed.
| Clause | What it means for you |
|---|---|
| All-monies guarantee | Covers every debt the company owes that creditor, now and in the future, not just the facility you are signing for |
| Limited or capped guarantee | Your liability is capped at a fixed sum, usually plus interest and costs |
| Continuing guarantee | Stays in force until formally released, even if the facility is renewed or increased |
| Indemnity clause | Makes you liable as if you were the main debtor, even if the company’s own obligation turns out to be unenforceable |
| Joint and several liability | The creditor can choose which director to pursue for the whole debt |
| “On demand” wording | The creditor can call on you without first suing the company or waiting for insolvency |
Benefits and risks of signing a director's guarantee
A personal guarantee can unlock finance or premises the company couldn’t otherwise get, but it puts your own assets behind a company debt. The Insolvency Service lists the main points on each side.
Benefits
- The company may get funding it couldn’t otherwise secure
- The lender may offer better terms, such as a lower interest rate
- Access to finance can help the business grow
Risks
- Your home, car, savings and investments could be used to pay the company’s debt
- If your personal assets aren’t enough, you could be made bankrupt
GOV.UK also notes that personal guarantee insurance is available to protect your personal assets if the company can’t pay, and recommends getting independent specialist advice before you proceed.
How to limit your liability before you sign
Most director’s guarantees are negotiable before signature, and almost none are once signed. The points we most often negotiate for directors are:
- A cap on the total amount you can be liable for
- Removing all-monies wording so the guarantee covers only the specific loan or lease
- A time limit or release trigger, for example release once the company has a clean payment record, or on the lease being assigned
- Several (not joint and several) liability when more than one director signs
- Removing or limiting the indemnity clause
- Avoiding or limiting a charge over the family home where the guarantee is to be secured
Do you need independent legal advice before signing?
Most banks and many landlords will insist on it, and it protects you as much as the creditor. The solicitor explains the document’s effect, confirms you are signing freely, and signs a certificate the creditor relies on later if the guarantee is challenged.
Advice matters even more where someone else is involved. If the guarantee is secured on a home you own with a spouse or partner who isn’t a director, the lender will normally require that person to take separate independent legal advice as well. Where the security is a charge over property owned by someone else, see our borrower and proprietor ILA service.
How a director's guarantee affects your duties as a director
A personal guarantee gives you a personal interest in how the company deals with that creditor, and company law requires you to manage that conflict.
- Declare your interest. Under section 177 of the Companies Act 2006, a director must declare the nature and extent of any interest in a proposed transaction with the company. A board decision about a facility you have personally guaranteed is a typical example. Your company’s articles may also restrict you from voting on it.
- Avoid conflicts. Section 175 requires you to avoid situations where your own interests conflict with the company’s.
- Don’t pay the guaranteed creditor first if the company is struggling. Paying off a debt you have guaranteed reduces your personal exposure. If the company later enters liquidation or administration, the office-holder can ask the court to reverse that payment as a preference under section 239 of the Insolvency Act 1986. Because a director is a connected person, the look-back period is two years and the court presumes the company intended to prefer you.
Does a director's guarantee end if you resign?
No. Resigning as a director does not, by itself, release you from a personal guarantee. Your liability continues until the guaranteed debt is paid or the creditor formally releases you in writing.
Some continuing guarantees allow you to give notice ending your liability for future debts, but you usually stay liable for everything owed up to that date. If you are leaving a company or selling your shares, negotiate a written release or a replacement guarantor as part of the exit, before you resign and lose any say in how the company’s debts are handled.
What happens if a director's guarantee is called in?
The creditor will usually send a written demand once the company defaults. If you don’t pay, it can issue a court claim or, for debts of £5,000 or more, start bankruptcy proceedings. Depending on the guarantee’s wording, the creditor may not need to wait for the company to go into liquidation or administration first.
- Formal demand under the guarantee
- Court claim for the debt. A county court judgment can then be enforced against your assets. See GOV.UK on county court judgments for debt.
- Statutory demand. Under the statutory demand procedure, you have 21 days to pay or reach an agreement, after which the creditor can apply to make you bankrupt. If you dispute the debt, you can apply to the court to set the demand aside, but the deadline is short, so act immediately.
Time limits also apply to creditors. Under the Limitation Act 1980, a claim on a guarantee signed as a deed generally has a 12-year limit, and an ordinary written guarantee has 6 years (section 5). When time starts running depends on the guarantee’s wording.
Possible defences include: the guarantee wasn’t properly signed or is incomplete; the creditor changed the underlying loan or lease without your consent in a way the guarantee doesn’t permit; the demand exceeds the cap; or the guarantee was obtained by misrepresentation or undue influence. If the company is insolvent, speak to our insolvency and director disqualification team.
How our director's guarantee solicitors can help
Adam Bernard Solicitors is an SRA-regulated firm (SRA number 598171) with offices in High Holborn and Upton Park. Our commercial property and civil litigation solicitors help directors to:
- Review a guarantee, lease or facility letter before signing and explain your exposure in plain English
- Negotiate caps, release dates and the removal of all-monies and indemnity wording
- Provide independent legal advice and sign the ILA certificate your lender or landlord requires
- Respond to a demand, county court claim or statutory demand under a guarantee, through our civil and commercial litigation team
- Advise on exiting a company while securing a release from your guarantee
For transactions involving business premises, we work alongside our commercial property solicitors. If you are the outgoing tenant on a lease assignment, read about Authorised Guarantee Agreements.
Call 0207 100 2525 (24/7) or book a consultation in person, by phone, or by Zoom, Teams, WhatsApp or Skype.
Frequently Asked Questions
What is a director's guarantee in simple terms?
It's a written promise by a company director to personally pay a company debt if the company can't. It means the creditor can pursue your personal assets, not just the company's.
Is a director's guarantee the same as a personal guarantee?
Yes. Director's guarantee, director's personal guarantee and personal guarantee all describe the same thing when a director signs to support their own company's borrowing or lease.
Is a verbal personal guarantee binding in the UK?
No. Section 4 of the Statute of Frauds 1677 requires a guarantee to be in writing and signed by the guarantor or someone authorised by them. Courts have accepted signed emails as sufficient, so be careful what you agree to in correspondence.
Can I lose my house because of a director's guarantee?
Yes. If the guarantee is secured by a charge over your home, the creditor can enforce that charge. Even if it's unsecured, a creditor who obtains a judgment or makes you bankrupt can look to your share of your home to recover the debt.
Does my personal guarantee end when I resign as a director?
No. Resigning doesn't release you. You remain liable until the debt is repaid or the creditor releases you in writing.
Can I negotiate a director's guarantee?
Usually, yes, before you sign. Common changes include capping the amount, removing all-monies wording, adding a release date, and avoiding joint and several liability.
What should I do if I receive a statutory demand under a personal guarantee?
Get legal advice straight away. You have 21 days to pay or agree terms before the creditor can apply to make you bankrupt, and a shorter window to apply to set the demand aside if you dispute the debt.
Do I need independent legal advice to sign a director's guarantee?
It isn't required by statute in every case, but most banks and many landlords won't accept a guarantee without a solicitor's ILA certificate. A spouse or partner whose home is offered as security will normally need separate advice.
This page is for general information only and does not constitute legal advice. Sources last checked 27 October 2026.
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