What is a personal guarantee? The legal position for UK directors

What a personal guarantee actually says

A personal guarantee (PG) is a separate contract — typically a deed — signed by one or more directors alongside the company's loan agreement. It tells the lender that if the company defaults, the guarantor steps in and pays. Courts treat it as an independent obligation: the lender does not need to exhaust remedies against the company first unless the guarantee says otherwise.

Most commercial guarantees are "on demand": the lender can call on the guarantor immediately upon a specified trigger, such as a missed payment or insolvency event. A few are "see to it" guarantees requiring the lender to pursue the company first, but these are less common in asset-light business lending.

Joint and several liability between co-guarantors

Where two or more directors co-sign, lenders almost always insist on joint and several liability. This means the lender can pursue any one guarantor for the full debt, regardless of how ownership or management responsibility is split. The guarantor who pays then has a right of contribution from co-guarantors — but that is a separate legal action and may be worthless if the co-director is also insolvent.

Before signing, directors should agree in writing among themselves how any guarantee call will be shared. This internal indemnity agreement does not affect the lender's rights but protects co-directors from bearing the full burden alone.

What happens when you resign as a director

Resignation from the board does not automatically release a personal guarantee. The guarantee continues until the lender formally releases it in writing or the underlying debt is repaid. This catches many outgoing directors off guard: selling shares or stepping down from management does not sever the guarantee obligation.

If you are leaving a business, securing a written release from the lender — or ensuring the incoming owners refinance the facility without your name on it — is the only safe route. Confirm the precise steps with a solicitor before completing any exit transaction.

Negotiating the guarantee before you sign

Guarantees are often presented as standard documents, but many terms are negotiable, particularly for larger facilities. Directors can seek a monetary cap (limiting exposure to a percentage of the loan), a time limit after which the guarantee lapses, a release trigger tied to loan-to-value ratios, or exclusion of accrued interest and enforcement costs from the capped amount.

Always have a solicitor review the guarantee wording before you sign. Independent legal advice protects you and, in some jurisdictions, strengthens the enforceability of the guarantee for the lender — making it in both parties' interests.