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Director Personal Guarantees and Liability

Clear guidance for UK directors on personal guarantees, dissolution and personal liability

Understand when you can be held personally liable and how to reduce the financial risk.

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What is a Director’s Personal Guarantee?

Personal guarantees by directors are common when a company takes out borrowing, leases premises, or secures trade credit. A director’s guarantee is a legally binding agreement that makes the individual personally responsible if the company cannot repay its debts.

When signing a directors guarantee, you are effectively stepping outside the protection of limited liability. While a limited company is a separate legal entity, a personal guarantee links your personal finances to the company’s obligations.

If the business fails and the lender calls in the guarantee, the director can be pursued personally for repayment. This may include personal savings, investments and property.

For many businesses, personal guarantees are required to unlock growth funding. However, it is vital to understand the implications before signing.

Why Purbeck
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What Is Directors' Personal Guarantee Insurance?

Many directors assume that if a company becomes insolvent or is dissolved, its debts simply disappear. This is not the case.

Where a director has signed a personal guarantee, it remains enforceable. If the company defaults, the lender can pursue the guarantor personally for repayment.

Directors' personal guarantee insurance is designed to protect directors who have signed personal guarantees in support of company borrowing. The policy can cover a percentage of the outstanding liability, subject to policy terms.

This form of insurance personal liability cover helps reduce exposure to:

  • Loss of personal savings
  • Forced sale of assets
  • Long-term personal debt

Personal guarantee insurance for directors does not prevent insolvency, nor does it remove the obligation to repay. Instead, it provides financial loss liability insurance protection if the worst happens.

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Why Consider Insurance for Financial Liability?

Signing a director’s guarantee is often necessary to secure funding. But it transfers risk from the company to the individual.

Financial liability insurance provides a safety net where that risk cannot be avoided. It can:

  • Protect up to a significant percentage of the guaranteed amount

  • Reduce the impact of enforcement action

  • Provide peace of mind when investing in growth

  • Help safeguard personal and family assets

If you are reviewing existing guarantees or arranging new borrowing, it is sensible to consider protection at the same time.

Case Studies
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The Benefits of Personal Guarantee Insurance

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Invest with confidence

Businesses need capital in order to succeed. PGI allows you to take out the loans you need to grow, all while protecting your personal assets.

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Asset 31

Protect up to 80% of your loan amount

Cover a significant sum and ensure that this bill doesn’t land at your feet if your business becomes insolvent.

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Asset 27

Secure your family’s future

Following insolvency, a demand made under the personal guarantee can have a detrimental impact on your personal assets. Don’t take the risk, find out about how Purbeck can help.

Happy clients who use Purbeck