How can I check if my personal guarantee is unenforceable?

Your personal guarantee could be unenforceable due to factors beyond your contract. This might include creditor misinformation, crucial omissions in the contract, co-guarantor problems, suspicions of fraud, or significant changes to the bank’s facility since your guarantee was signed.


How can we say a personal guarantee is unenforceable by a lender?

Personal guarantees issued for business loans make you personally responsible for the debt if your company can’t repay. Your home and other personal assets are at risk in case of business failure, as the lender will seek repayment through legal proceedings.

Confronted with such a situation, it’s worth evaluating the enforceability of the personal guarantee. Various reasons can render a personal guarantee unenforceable, and external circumstances may also impact its validity beyond the terms of the contract.

Firstly, let’s explore the definition of a personal guarantee and its implications for you as the guarantor.


Personal guarantee- what is it?

Banks and other lenders usually demand a personal guarantee from one or more directors, ensuring repayment of the loan in case the company falls short. This secondary liability reduces the lender’s risk and offers an extra means to recoup their funds.

When multiple directors guarantee a loan, the lender typically focuses on the director with greater financial capability or substantial assets. Personal guarantees may have limitations, potentially covering only a portion of the loan, and there might be a timeframe on your liability.


Unlocking The Conditions When a Personal Guarantee Is Not Enforceable

The enforceability of a personal guarantee is often influenced by external factors rather than the document’s wording. External considerations, such as the ‘limitation period,’ could play a crucial role.

This is the timeframe permitted for initiating legal proceedings to recover debt. It is six years for ‘standard’ debt recovery cases but may extend to 12 years if the personal guarantee is considered a deed.

If a bank delays this duration before asserting its claim, you might argue that the considerable time lapse alone has diminished your prospects of effectively defending it, for instance.

However, what other external circumstances might render a personal guarantee unenforceable? Here are a few potential scenarios:

  • The lender failed to disclose a crucial fact that would have influenced your decision to sign the guarantee – for instance, you believed someone else was a co-guarantor, but they weren’t, and you were unaware of this.
  • You were significantly misled by the creditor when signing the guarantee, or it was done under duress or involved fraud.
  • Perhaps the bank’s facilities underwent significant changes between signing the guarantee and the creditor’s claim, and you were unaware of these alterations.

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It’s time to challenge a personal guarantee:

It’s vital to act promptly when disputing a personal guarantee – giving yourself time to assess all the facts and possible avenues for challenge. Additionally, once the lender initiates legal action, enforcement can be a swift process.
For trustworthy professional guidance in navigating liability via a personal guarantee, turn to Vanguard Insolvency. Call our partner-led team to schedule a complimentary same-day meeting, enabling us to promptly assess your options. Our extensive network of offices spans throughout the UK.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.