A personal guarantee can allow a creditor to pursue a director personally when the company fails to pay, but the result depends on the wording. The guarantee must cover the relevant debt, any required demand must have been made, and no later event must have released or limited the guarantor’s liability. You do not always have to sue the company first; some guarantees create liability as soon as the company defaults or after a contractual demand. The Insolvency Service describes a personal guarantee as a legally binding agreement under which a director personally repays specified company debt if the company cannot meet it.
Why the guarantee must be properly documented
Section 4 of the Statute of Frauds 1677 generally requires a guarantee to be evidenced in writing and signed by the guarantor or someone authorised to sign for them. The signature and capacity therefore matter. If a director signed only on behalf of the company, there may be an argument about whether they intended to assume personal liability.
Landlords dealing with guarantees can also read when a tenancy guarantee can be challenged.
What to check before pursuing the director
| Check | Why it matters |
|---|---|
| Signature and capacity | Confirm the director signed personally as guarantor |
| Scope | Check whether it covers one debt, continuing credit or all sums due |
| Variations | Material changes may affect liability unless the guarantee permits them |
| Demand clause | Some guarantees require a formal written demand |
| Contract or deed | Limitation may differ depending on how it was executed |
| Asset position | Enforcement is only useful if recoverable assets or income exist |
For England and Wales, a claim founded on a simple contract is generally subject to a six-year limitation period, while an action on a specialty, such as a deed, is generally subject to 12 years. The period runs from when the relevant cause of action accrues, which can depend on the guarantee’s wording and demand provisions.
Recovering the debt in practice
A properly drafted letter before action will usually identify the underlying debt, the guarantee, the amount claimed and any demand required by the document.
For qualifying business-to-business debts, the Late Payment of Commercial Debts (Interest) Act 1998 can allow statutory interest at 8% above Bank Rate. Bank Rate is currently 3.75%, producing a statutory rate of 11.75% where the Act applies. Fixed compensation of £40, £70 or £100 may also be available depending on the invoice value. Whether those additional sums are recoverable from the guarantor depends on the guarantee’s scope.
If payment still does not arrive, a money claim may follow. See choosing the right court route for a civil dispute or, where eligible, start a money claim online.
A statutory demand is another possibility where an individual owes at least £5,000 and the debt is genuinely due and undisputed. If it is not dealt with within 21 days, bankruptcy proceedings may potentially follow. It should not be used simply to pressure someone where there is a substantial dispute. Similar care with records is important when chasing and documenting rent arrears before court action.
After judgment, possible enforcement routes include a warrant or writ of control, charging order, third-party debt order or, where appropriate, attachment of earnings. Court fees should be checked separately; our note on the latest Property Chamber fee changes covers a different tribunal context.
Where guarantees can fail
A guarantee may be challenged because of its wording, expiry provisions, misrepresentation, undue influence or changes to the underlying agreement. A material variation made without the guarantor’s consent can sometimes discharge or restrict liability, although many modern guarantees contain clauses addressing future variations.
Good records remain essential. See building an evidence file that stands up in court and check the company’s status through the Companies House register.
Commercial property disputes may also involve commercial lease solicitors in London or landlord and tenant eviction services. Separate condition claims can require housing disrepair solicitors in London. If a guarantor has died, advice from probate solicitors in London may be needed. Landlords can also follow our plain English timeline of the Renters’ Rights reforms.
Frequently asked questions
Can a director be personally liable for company debts?
A director is not normally personally liable simply because they are a director. A valid personal guarantee can create contractual liability. Separate statutory or insolvency-related liabilities may also arise in particular circumstances.
Is a guarantee valid if the company has been dissolved?
Potentially. Dissolution does not automatically determine every guarantor liability. The guarantee wording, timing of default and circumstances of dissolution need to be checked.
How long do you have to enforce a personal guarantee?
In England and Wales, the usual period is six years for a simple contract and 12 years for a specialty such as a deed, calculated from when the cause of action arose.
Can a personal guarantee be cancelled?
It may end through an agreed release, an expiry or termination provision, or other legal circumstances affecting enforceability. The document should be reviewed before assuming liability has ended.
Talk to us before you send the demand
Guarantee claims often turn on a few lines of drafting. Before taking formal action, speak to our solicitors in North London on 020 3581 9293 or email info@atalawsolicitors.com for an assessment of the guarantee and recovery options.