Necessity
Independent legal advice is needed when company directors personally guarantee business debts, providing extra assurance to lenders about their commitment.
Implications
Directors risk their personal assets if the business defaults. The guarantee remains enforced even if the director resigns. This can include personal contributions to settle the company’s debt, potentially affecting their personal finances and creditworthiness.
Procedure
Solicitors review loan terms, explain risks and obligations, and the director signs. The solicitor issues a confirmation certificate. It’s critical to discuss the director’s current financial standing and potential repercussions on their personal and professional life.
Advice Covers
- Risks of signing a personal guarantee.
- Ways to limit liability (e.g., capping the guarantee amount).
- Impact on the director’s personal financial situation and credit rating.
- Consideration of alternative financing options that do not require personal guarantees.