Guarantors – Some Considerations


Q. We are a finance house who entered into a commercial hire agreement with a new company who needed to acquire plant and equipment. It was a condition of the agreement that both directors gave their personal guarantees. Now the company has collapsed and one of the directors has already gone bankrupt. The other one is saying that he never saw the form and it is not his signature. We thought we had security but now we are contemplating a huge write-off. Could we have done anything more to protect ourselves?

A. Any form of lending to a limited company always comes with the risk that if the company fails then nothing owed may be recovered. Therefore it is always prudent to secure that lending with whatever tangible security may be available. A personal guarantee from a director or some other supporter of the business can provide some comfort but there are certainly steps that you can take at the time of preparing and giving the guarantee which can help maximise the value of that security.

A personal guarantee is worth no more than the guarantor. So what is he worth? Make enquiries. Ask him directly about assets and other liabilities. Does the guarantor have any property over which you can take a charge to support the guarantee. If he has been giving personal guarantees to other lenders then that may diminish his ability to honour yours.

In your case, it is likely that the bankrupt director gave other guarantees or commitments beyond his worth. Therefore, when you came calling, there was already nothing left.

Your other concern is a director who is denying that he has signed the guarantee. In some cases the question of whether a signature is that of the named guarantor can be determined by a forensic handwriting expert but there are steps you can take, at the time that the guarantee is given, which should preclude such allegations being made.

Simply sending personal guarantee forms to a company and asking them to return them signed and completed is providing scope for abuse.

There are not many formalities to a guarantee but, even so a surprising number of guarantees fail. For the guarantee to be binding on the guarantor it must be in writing and signed personally either by the individual or his authorised agent. Therefore, make sure that is what happens. Invite any guarantors to sign the document in person at your office and ensure that a witness is present when they do so. The witness will then confirm that by also signing the agreement. If for any reason the guarantor cannot attend at your office then make sure your representative visits him and, again, witnesses the guarantor’s signature.

Remember, if a director is not willing either to give a personal guarantee or to pledge property in support of that guarantee then he is asking you to have a confidence in his company’s prospects greater than his own. Why should he sleep easier than you?

Greenhalgh Kerr
Olympic House, Beecham Court,
Smithy Brook Rd,
Wigan WN3 6PR

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+44 (0)333 200 5200

We are confident in our work and we know that recoveries is a key part of a lender or creditor’s business

We are confident in our work and we know that recoveries is a key part of a lender or creditor’s business. We have designed our pilot projects to give lenders and creditors the comfort and confidence in our service before formally and fully switching recoveries providers. This time also allows new clients to benchmark our service levers and results against existing providers and others.

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You choose 10 recoveries cases

You choose 10 recoveries cases to get us started. We’ll deliver our usual onboarding protocol where we’ll get to know you and your systems, culture, methods, preferences, and requirements.


We get started

We assess each case by setting a strategy then grading and reporting on the case in terms of prospects and timescales and cost. We make immediate contact with debtors, and pursue a recovery in our tried and tested ways.


We review

We deliver ongoing, structured, tailored reports as per your needs and carry out a full 3-month review on these 20 cases. There we’ll discuss how we have worked together, patterns we have seen in your borrowers, your systems, your documents, your pre-legal conduct, outcomes, highs and lows, legal costs (and costs borne by debtors), and possible improvements in all of these.


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We carry on working in this way until all cases have been concluded. You are then free to carry on your discussions with us or to use the experience and market intelligence gained by working with us in the future.

Lenders and creditors have nothing to lose, and everything to gain, by engaging with us on a pilot project.