One of the questions we are often asked by our clients is: "can we enforce a personal guarantee given by a director of a company in circumstances where the company is placed into voluntary administration?". In short, the answer is "no".
Directors are generally required to give personal guarantees for company's debts and obligations in loan, lease or other finance arrangements. In such circumstances, the director will be personally liable for the company's debt or commitment if the company does not meet that obligation because the guarantee is a separate agreement between the director and the creditor. Most commonly, director guarantees are contained in the terms and conditions of the facility sought by the company; however, there may be some occasions where the director guarantee is detailed in a separate document.
If a company goes into liquidation and the creditor has obtained a personal guarantee from the director, then the creditor has the right to exercise and enforce the guarantee given by the director. The creditor is not obliged to await the outcome of the company's liquidation; they can pursue the debt immediately through enforcing the personal guarantee given by the director, regardless of any proposed distribution from the liquidation.
On the other hand, in circumstances where the company is placed into voluntary administration, the creditor cannot exercise or seek to enforce a personal guarantee given by the company's:
- director(s); or
- spouse, de-facto or relative of a director(s),
whilst the company remains in voluntary administration. Once the voluntary administration is terminated, the creditor has the right to pursue any guarantees that it obtained from the director of the company or any related party as the case may be.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
