Personal guarantees: what directors and guarantors need to know

What a personal guarantee is

A personal guarantee is a promise by an individual to pay a debt, or meet an obligation, of someone else, usually a company, if that company does not. Directors and shareholders of limited companies are asked for guarantees because a company's owners are not otherwise liable for its debts. The request can come from a bank or finance company lending to the business, an asset finance or invoice finance provider, a landlord granting a lease, or a supplier offering credit. Supplier credit application forms sometimes include a guarantee in their terms, so a director who signs one can become personally liable for the company's account.

To be enforceable, a guarantee must be in writing and signed by the guarantor or by someone they have authorised (Statute of Frauds 1677, section 4). Lenders often ask for guarantees to be signed as deeds, which an individual must sign in the presence of a witness who attests the signature (Law of Property (Miscellaneous Provisions) Act 1989, section 1). A deed gives the lender longer to bring a claim: twelve years, compared with six years for an ordinary contract (Limitation Act 1980, sections 5 and 8).

Lender documents are often headed ‘guarantee and indemnity’, and the two parts work differently. Under a guarantee, your liability is secondary: you are liable only if, and to the extent that, the company is liable and has not paid. Under an indemnity, you take on a separate obligation of your own to make good the lender's loss, which can apply even if the company's obligation turns out to be unenforceable. Together with clauses allowing the lender to change the facility, give the company more time or release other security without asking you, the indemnity wording removes many of the defences a guarantor would otherwise have.

All-monies, capped and joint and several guarantees

Three features of the document decide how much you could be asked to pay.

The first is what the guarantee covers. A specific guarantee covers one facility, such as a particular loan. An all-monies guarantee covers everything the company owes the lender now or in the future, on any account, including overdrafts, card facilities, asset finance and new borrowing agreed after you sign. With an all-monies guarantee, the amount you are exposed to can grow without anyone asking you again. The Law Society's summary of the advice a solicitor must give a guarantor under the Etridge process, described below, includes the fact that the lender may change the terms of the loan, including increasing the amount borrowed, without reference to the guarantor.

The second is whether there is a limit. A capped guarantee limits your liability to a stated sum. Check whether interest, enforcement costs and the lender's legal fees fall within the cap or are added on top, because that can make a large difference to the total. An uncapped guarantee makes you liable for the whole debt.

The third is whether liability is shared. Where several people guarantee the same debt jointly and severally, the lender can claim the entire amount from any one of them. A guarantor who pays the debt is entitled to take over the lender's rights and any security it holds, in order to recover from the company, and to recover from co-guarantors their fair share, but no more (Mercantile Law Amendment Act 1856, section 5). In practice, recovering from co-guarantors who cannot pay, or from a company that has failed, may produce little.

How lenders call on a guarantee

A guarantee is usually called on after the company defaults, for example by missing payments, breaching the terms of its facility or entering an insolvency procedure. The lender makes a written demand on the guarantor. A guarantee may allow the lender to demand payment from you without first taking action against the company or selling its assets, and may make a written demand a condition of your liability, so the wording of the demand clause matters.

If you cannot pay in full, try to negotiate. An agreed settlement, a payment plan or the sale of an asset can avoid the cost of court proceedings for both sides, and a guarantor who engages early and gives a clear picture of their finances is in a better position to agree one. Take advice before you respond to a demand or make any offer.

If there is no agreement, the lender has two main routes. It can bring a court claim, obtain a judgment and enforce it, including by asking the court for a charging order over your home or other property, which must be paid off from the proceeds when the property is sold. Or it can serve a statutory demand. You then have 21 days to pay or reach an agreement, and if you were in the UK when you received it you have 18 days to apply to the court to set it aside if you dispute the debt. If the demand is not complied with, a creditor owed £5,000 or more can present a bankruptcy petition. If the guarantee is supported by a mortgage or charge over your home, the lender can also enforce that security.

Independent legal advice and the Etridge process

When a spouse, partner or family member guarantees a debt, or charges a jointly owned home to secure it, the law recognises a risk that they have been pressured or misled by the person whose business benefits. In Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, the House of Lords held that a lender is put on inquiry whenever a wife offers to stand surety for her husband's debts, that the same applies where a husband stands surety for his wife and to unmarried couples where the lender is aware of the relationship, and that lenders should regard themselves as put on inquiry in every case where the relationship between the guarantor and the debtor is non-commercial. A lender is also put on inquiry where a wife guarantees the debts of a company whose shares are held by her and her husband, even if she is a director or company secretary. The Supreme Court applied the same approach in Waller-Edwards v One Savings Bank plc [2025] UKSC 22, holding that a lender is also put on inquiry where a joint loan includes more than a trivial amount used to pay one partner's own debts.

A lender that is put on inquiry protects itself by following what the courts call the Etridge protocol. It should communicate directly with the guarantor, telling them that it will require written confirmation from a solicitor acting for them that the solicitor has fully explained the nature of the transaction and its practical implications, and that the purpose is to prevent the guarantor later disputing that they are bound. The guarantor nominates the solicitor. With the borrower's consent, the lender provides the financial information the solicitor needs, normally including the purpose of the new facility, the current borrowing, the amount of the current overdraft facility and the amount and terms of the new facility. If the lender does not take these steps and the guarantor's agreement was obtained by undue influence or misrepresentation, the guarantee or charge can be set aside against the lender.

The Law Society's guidance summarises the core minimum requirements that Lord Nicholls set out for the solicitor's advice. The advice should be given at a face-to-face meeting without the borrower present, in non-technical language, and should explain the nature of the documents, the risk of losing the home and even of bankruptcy if the business does not prosper, the seriousness of the risk given the purpose, amount and terms of the facility, the fact that the lender may change the terms or increase the borrowing without reference to the guarantor, and that the decision whether to sign is the guarantor's alone. The solicitor should also ask whether the guarantor wants them to negotiate with the lender, for example to limit the amount guaranteed, and whether the guarantor is content for the solicitor to confirm to the lender that the advice has been given.

The protocol is aimed at non-commercial relationships. A director guaranteeing the debts of a company they run and own has a direct financial interest in the borrowing, but a lender may still ask them to confirm that they have taken legal advice. We advise guarantors, including spouses and partners who have been asked to sign, and provide the lender with confirmation once the advice has been given and the guarantor agrees. A solicitor advising a guarantor acts for the guarantor in that role and must be satisfied that there is no conflict of interest in doing so.

What you can negotiate before signing

Personal guarantees are often presented as standard forms, but the terms can be negotiated, particularly where the business has a good track record or other security to offer. Points to raise include:

• a cap stated as a fixed sum in pounds, with interest and costs included within it;
• limiting the guarantee to the facility you are signing for, rather than all money the company owes the lender;
• a time limit, after which the guarantee ends for anything the lender has not already demanded;
• release when the facility is repaid or refinanced, when you sell your shares or stop being a director, or when the company meets agreed financial targets;
• several rather than joint and several liability, so that each guarantor is liable only for their own share;
• no charge over your home, or a limit on the amount it secures;
• written notice and a period to pay before any demand is enforced.

A lender will not agree to all of these, and its response will depend on the size of the facility and the company's position. Whatever is agreed, you should know before signing what you could owe in pounds, in what circumstances and for how long.

Guarantees for landlords and suppliers can also be negotiated. A landlord may accept a rent deposit instead, or a guarantee limited to an amount of rent. For leases granted on or after 1 January 1996, when a tenant lawfully assigns the lease and is released from its obligations, a guarantor of that tenant is released to the same extent (Landlord and Tenant (Covenants) Act 1995, section 24), although the outgoing tenant can be required, as a condition of the landlord's consent, to guarantee the new tenant under an authorised guarantee agreement (section 16). For a supplier's credit account, ask for the guarantee to be capped at the credit limit and to allow you to end it for future supplies by written notice.

If the company runs into financial difficulty

A personal guarantee can put a director in a difficult position when the company is struggling, because the director has a personal interest in which creditors are paid first. Using the company's remaining money to reduce a debt you have guaranteed can be challenged as a preference. If a company goes into liquidation or administration, the court can reverse a payment or other step that improved the position of a guarantor of the company's debts, if it was made within the two years before the insolvency for a guarantor connected with the company, such as a director, and the company was unable to pay its debts at the time or became unable to as a result. For a connected person such as a director, the court presumes that the company intended to prefer them unless the contrary is shown (Insolvency Act 1986, sections 239, 240 and 249). Our guides to directors' duties in insolvency and options for a company in financial difficulty explain the wider picture.

When the company enters administration or liquidation, the lender will normally demand payment from the guarantors. You are entitled to claim against the company for what you pay, but as an unsecured creditor of an insolvent company you may recover little, and the guarantee may prevent you from claiming in the insolvency until the lender has been paid in full. If you face a demand you cannot meet, take advice early on negotiating with the lender and on your personal position, which may include a formal arrangement with your own creditors.

Getting released when you sell, retire or step down

Resigning as a director, selling your shares or retiring from the business does not by itself end a personal guarantee. You remain liable for the debts it covers until the lender releases you or the guarantee ends under its own terms, so deal with it as part of any exit.

On a sale of the company, ask for your release to be a condition of completion. The buyer may refinance the borrowing with its own lender, or the existing lender may agree to accept a guarantee from the buyer instead of yours. If the lender will not release you, the buyer should agree to indemnify you against any claim under the guarantee and to keep working to obtain your release, and the indemnity should be backed by security or a guarantee from a substantial parent company, because an indemnity is only worth what the person giving it can pay. Our guide to selling your business covers the rest of the process.

If you are staying involved but stepping back, check whether the guarantee is a continuing guarantee that you can end by notice. Some allow a guarantor to end liability for new borrowing after a notice period while remaining liable for amounts owed at that date. Ending a guarantee without arranging replacement security may lead the lender to review the company's facilities, so discuss it with your co-directors first. For a lease, check whether the tenant can assign with your release, and for a supplier account, write to the supplier to end the guarantee for future credit.

Before you sign

Allow time for legal advice before the date the finance is needed, and for a separate meeting if a spouse or partner is also being asked to sign. Before the meeting, gather:

1. the facility letter or loan agreement, the guarantee, and any mortgage or charge over your home;
2. the company's latest accounts and management figures, and details of its existing borrowing from the lender;
3. details of any other guarantees you have given;
4. information about any property that would be at risk, including who owns it and the mortgage already secured on it.

With those documents, a solicitor can tell you what you are agreeing to in pounds, which terms are worth negotiating and what would happen in the situations that concern you. We agree the scope and cost of advising on a guarantee in writing before we start.

Frequently asked questions

Can I get out of a personal guarantee?

Usually only with the lender's agreement or under the guarantee's own terms. Some continuing guarantees let you give notice to end liability for future borrowing, but you stay liable for what was owed when the notice took effect. On a sale of the business, the usual route is for the buyer to refinance the debt or for the lender to accept a replacement guarantee. A guarantee can sometimes be challenged, for example if it was not properly signed or was obtained by undue influence that the lender should have guarded against.

Does a personal guarantee end if the company goes into liquidation?

A personal guarantee does not end when the company goes into liquidation. Liquidation is normally the point at which the lender demands payment from the guarantors, because the company can no longer pay. Your liability continues until the guaranteed debt is paid, the lender releases you or the guarantee ends under its terms. You can claim against the company for what you pay, but as an unsecured creditor of an insolvent company you may recover little, and the guarantee may stop you claiming until the lender has been repaid.

Can a lender take my house under a personal guarantee?

It can if the guarantee is secured by a mortgage or charge over your home, or if the lender obtains a court judgment against you and then a charging order over the property. A charging order means the debt must be paid from the proceeds when the property is sold. A creditor owed £5,000 or more can also present a bankruptcy petition against a guarantor who has not paid a statutory demand. If you receive a demand under a guarantee, take advice before responding.

Why does my spouse need to see a solicitor before signing a guarantee?

Because the lender needs to be able to show that your spouse understood the risk and agreed freely. Under the Etridge case, a lender taking a guarantee or charge from someone in a non-commercial relationship with the borrower, such as a spouse or partner, is put on inquiry that their agreement may have been obtained by undue influence or misrepresentation. To protect itself, the lender asks for written confirmation from a solicitor acting for your spouse that the documents and risks have been explained at a meeting without you present.

What is the difference between a guarantee and an indemnity?

A guarantee is a promise to pay if the company does not, so your liability depends on the company being liable. An indemnity is a separate promise to make good the lender's loss directly, which can apply even if the company's own obligation turns out to be unenforceable. Lender documents often combine the two in a single guarantee and indemnity, which makes it harder for a guarantor to rely on technical defences. A guarantee must be in writing and signed to be enforceable.

Is a personal guarantee valid if I signed it electronically?

It can be. A guarantee must be in writing and signed by the guarantor, and the Law Commission concluded in 2019 that an electronic signature is capable in law of being used to execute a document where the signer intends to authenticate it and any formalities are met. If the guarantee is a deed, an individual's signature must be made in the presence of a witness who attests it. Whether a particular guarantee was validly signed depends on the facts, so keep a copy of what you signed and a record of how.

If I resign as a director, am I still liable under my guarantee?

Yes. Resigning as a director or selling your shares does not end a personal guarantee, and you remain liable for the debts it covers until the lender releases you or the guarantee ends under its terms. If the guarantee is a continuing one, you may be able to give notice ending liability for new borrowing, but not for amounts already owed. Ask for a formal written release as part of your exit rather than relying on a verbal assurance from the lender or your former co-directors.

Sources & further reading

• legislation.gov.uk — Statute of Frauds 1677, section 4
• The Supreme Court — Waller-Edwards v One Savings Bank plc [2025] UKSC 22
• The Law Society — Undue influence: solicitors' duties post-Etridge
• GOV.UK — Make and serve a statutory demand, or challenge one
• GOV.UK — Apply to bankrupt someone who owes you money
• legislation.gov.uk — Insolvency Act 1986, section 239
• legislation.gov.uk — Landlord and Tenant (Covenants) Act 1995, section 24
• legislation.gov.uk — Limitation Act 1980, section 8

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. Buzz Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).