A personal guarantee is being called in. What happens now.

What you signed

A personal guarantee is a contract between you and the lender that you will pay if the company does not. It sits outside the company and outside limited liability. Bank overdrafts, asset finance, invoice finance, commercial leases and some supplier credit accounts all commonly carry one. Many directors have forgotten which facilities they guaranteed. Find out.

How enforcement works

Once the company defaults or enters liquidation, the lender serves a demand on you. Then a letter before action, typically giving 14 to 30 days. Then a county court claim, which if undefended becomes a judgment. With a judgment the lender can apply for a charging order over your home and, in the last resort, petition for your bankruptcy. The whole sequence can run in under three months.

Where there is room

Lenders would rather have a certain sum now than an uncertain sum after years of enforcement. A realistic offer backed by a statement of your means, made early and in writing, is often accepted at a discount. Where several guarantees are being called at once, a licensed practitioner or a solicitor can negotiate them together, and an individual voluntary arrangement can deal with all of them if the figures justify it.

Check the guarantee itself

Look for a cap on the amount, a time limit, whether the facility was changed after you signed, whether you were advised to take independent legal advice, and whether the guarantee was properly witnessed. Any of these can reduce or defeat the claim.

What to do this week

1. List every facility you have guaranteed, with the current balance on each.
2. Do not ignore a demand or a letter before action. Respond in writing and ask for the guarantee document and the account history.
3. Prepare an honest statement of your assets, income and other debts.
4. Speak to a licensed practitioner before making any offer.