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Personal Guarantees

Richard Maguire, Partner

Q. What are Personal Guarantees?

Dear Reader,
In 2009, one of those less aggressive English celebrity chefs bared his teeth and in an act of defiance at the attitude of British banks to lending, let his restaurant business go into administration. His bankers refused to extend his Company’s overdraft without a Personal Guarantee and he wasn’t prepared to give it.

Personal Guarantees are often sought of Directors from Banks, Landlords, Leasing Companies and Essential Suppliers.

If such Personal Guarantees are being considered by Directors of Irish Companies, they should be fully aware of the personal exposures which can arise when a Company gets into financial difficulties. In these difficult times, all Directors need to fully understand the consequences of actions taken by them when dealing with a Company’s debt and their personal exposure to same.

Prior to the Credit Crunch when Companies were convinced that “getting bigger faster” was the right thing to do, bank finance was obtained rather than progressing at a rate that was financeable from the Company’s own resources. With such finance it was common practice for banks to require Company Directors to give Personal Guarantees in respect of the Company’s loans.

Where a Director’s guarantee is given, they become personally responsible to repay the  loan. As such, the bank or creditor with whom the guarantee was executed, will be entitled to go after the Director at the same time as taking action against the Company.

In general, one should consider the potential future implications of providing a Personal Guarantee, as to do so, may have implications for a Directors own personal wealth and their family’s future.

This column is a readers’ service and is not intended to replace professional advice.