We do sometimes get asked whether personal guarantees (PGs) can be voided if the business becomes insolvent or goes into liquidation. Unfortunately, this is not the case as it is well...personal. As such, it has nothing to do with the company. Leases on shops are quite often backed up with personal guarantees, as are company bank accounts, or hire purchase agreements.
Only bankruptcy can stop you having to pay out on a personal guarantee. Otherwise it is best that you pay it or you may be able to come to some sort of agreement. However, sometimes companies don't know they actually have personal guarantees so don't mention it if you don't have to! Also the validity of the paperwork can sometimes be called into question so it is worth taking advice on the matter. Call us if you have any questions. We know Julian Donnelley of James Rosa Associates who is an expert at negotiating on PGs
One should also be mindful that if you start to pay back a debt that has a personal guarantee at the expense of other creditors it could be perceived as creating a preference - i.e. making one creditor better off than another.
Blogged by Robert Moore