Entering SBR does not automatically release directors from personal guarantees they have signed. While SBR pauses enforcement of personal guarantees against directors during the restructuring period, that protection is temporary — creditors may still be able to enforce personal guarantees once the process ends, depending on the terms of the agreement and the outcome.
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On This Page
- Introduction
- What are Personal Guarantees?
- Enforce Personal Guarantees During SBR?
- What Happens if a Director Cannot Meet a Personal Guarantee?
- Managing Personal Guarantee Risks During SBR?
- Next Steps
- FAQs
Introduction
Many directors assume that restructuring a business also protects them from personal liability. That’s only partly true. Personal guarantees are temporarily protected while a company is under SBR, but that protection doesn’t necessarily last beyond the restructuring period.
Once a company enters SBR, a moratorium generally applies that prevents a creditor from enforcing a personal guarantee against a director (or a director’s relative) without the leave of the court, for as long as the company remains under restructuring.
This protection is temporary, not permanent. It doesn’t cancel the guarantee — it pauses enforcement while the restructuring is underway. Once the restructuring period ends, whether through an approved plan, a rejected proposal, or termination of the process, a creditor may again be able to enforce the guarantee according to its terms.
Directors should:
- Review every personal guarantee they have signed
- Understand when the guarantee can be enforced, including what happens once the restructuring period ends
- Seek legal and restructuring advice before proposing an SBR plan
This article explains when personal guarantees are protected during SBR, when they can still be enforced, and the practical steps directors can take.
What are Personal Guarantees?
A personal guarantee is a legal promise made by a director to repay a business debt if the company cannot.
Lenders, landlords and suppliers often ask for one when a business is borrowing money, leasing premises or opening a trade account. This is especially the case if the company is new or has limited assets.
By signing a personal guarantee, the director agrees to become personally responsible for the debt if the company defaults. This means the creditor may be able to pursue the director directly, even though the original debt belongs to the company.
Common examples of debts backed by personal guarantees include:
- Business loans and overdrafts.
- Equipment and vehicle finance.
- Commercial property leases.
- Supplier credit accounts.
- Business credit cards.
Understanding which debts are personally guaranteed is an important step before entering Small Business Restructuring (SBR).
Enforcing Personal Guarantees During SBR?
Generally, no — not while the company remains under restructuring.
The moratorium that applies during SBR generally prevents a creditor from enforcing a personal guarantee against a director or their relative without the court’s leave, for the duration of the restructuring period.
This changes once the restructuring period ends. Whether a creditor can enforce the guarantee at that point depends on the agreement’s terms and the circumstances of the default. The restructuring process may still improve the situation by reducing company debts and creating opportunities to negotiate with creditors directly, even after the moratorium lifts.
If the company defaults under the terms of a loan, lease or supplier agreement once the restructuring period has ended, the creditor may be entitled to pursue the director personally. Whether this happens depends on the wording of the guarantee and the creditor’s commercial decision.
Once the moratorium no longer applies, creditors may choose to:
- Demand payment from the director
- Negotiate a settlement or repayment arrangement
- Commence legal action to recover the guaranteed debt
- Enforce security provided under the guarantee, where applicable
What Happens if a Director Cannot Meet a Personal Guarantee?
If a director cannot repay a guaranteed debt once it becomes enforceable, the creditor may take steps to recover the money personally. The consequences depend on the amount owed, the guarantee terms and the director’s financial position.
Possible outcomes include:
- Receiving formal payment demands.
- Court proceedings to recover the debt.
- Enforcement against personal assets where legally available.
- Negotiated repayment arrangements or settlements.
- In more serious cases, personal bankruptcy proceedings.
Managing Personal Guarantee Risks During SBR?
Although the SBR moratorium only pauses personal guarantee enforcement rather than removing it, directors can take practical steps to reduce their financial exposure both during and after the restructuring period.
These include:
- Preparing a list of every personal guarantee they have signed.
- Reviewing loan, lease and supplier agreements carefully.
- Discussing guarantee obligations with an SBR practitioner and legal adviser.
- Negotiating with creditors where appropriate.
- Ensuring the proposed SBR plan is realistic and financially achievable.
- Avoiding new personal guarantees unless they fully understand the risks.
Taking action early gives directors more opportunities to negotiate with creditors and make informed decisions about both the business and their personal finances.
Next Steps
If you have signed personal guarantees and your company is considering/entering Small Business Restructuring (SBR), it is important to understand your personal financial exposure early. Reviewing your obligations before the restructuring period ends can help you make informed decisions and improve your options for managing both business and personal liabilities.
Practical next steps include:
- Identifying every personal guarantee you have signed on behalf of the company.
- Reviewing the terms of each guarantee to understand when it can be enforced.
- Assessing which business debts may leave you personally liable.
- Discussing your personal guarantee obligations with your Small Business Restructuring Practitioner.
- Seeking independent legal advice about your rights and potential risks.
- Opening discussions with creditors where appropriate to explore repayment or settlement options.
At Halo Advisory, we help directors with the financial and legal implications of Small Business Restructuring, including personal guarantee obligations. Financial expert Greg Bartels offers a no-obligation consultation to assess your situation, explain your options, and help you develop a practical strategy to protect both your business and your personal financial position. Get in touch today.
FAQs
Can a director withdraw a personal guarantee after signing it?
Generally, no. A personal guarantee remains in place unless the creditor agrees to release or vary it, or the underlying agreement comes to an end under its terms.
Does resigning as a director remove liability under a personal guarantee?
No. Resigning from the company does not usually cancel a personal guarantee you signed while acting as a director. Your obligations typically continue until the guarantee is released or otherwise ends.
Can a creditor agree to release a personal guarantee during Small Business Restructuring?
Yes. A creditor may agree to release or amend a personal guarantee as part of commercial negotiations, although they are generally not required to do so.
Can more than one director be liable under the same personal guarantee?
Yes. Where multiple directors have signed the same guarantee, each may be liable according to the terms of the agreement. The extent of each director’s responsibility depends on the wording of the guarantee.
Can a personal guarantee cover future borrowing as well as existing debt?
Yes. Some guarantees are drafted as “continuing guarantees”, meaning they may apply to future credit or borrowings until they are formally revoked or released under the agreement.
Can a director negotiate a personal guarantee before signing it?
Yes. In some cases, creditors may agree to limit the amount guaranteed, reduce the duration of the guarantee, or remove certain obligations before the agreement is signed.
Does refinancing a business loan automatically remove an existing personal guarantee?
Not always. A refinanced loan may require a new guarantee or continue the existing one, so directors should carefully review the new finance documents before signing.
