The short answer
Liquidating your company does not cancel a personal guarantee. A guarantee is your own separate promise to repay the lender if the company cannot, so once the company is insolvent the lender can pursue you personally for the guaranteed amount. The company’s liquidation simply confirms it cannot pay. You may be able to negotiate a settlement or instalment plan, and the lender must first account for any security or recoveries from the company.
Many directors give personal guarantees to secure company borrowing, leases or trade credit — often without focusing on what happens if the company fails. A personal guarantee is a separate contract between you and the lender, and it survives the company’s liquidation. This guide explains how guarantee claims work, what the lender can and cannot do, and your options for dealing with one.
Personal guarantees at a glance
- What it is Your separate promise to repay the lender
- Effect of liquidation Does not cancel the guarantee
- Who pursues you The lender, personally
- Amount Up to the guaranteed limit, less recoveries
- Options Negotiate settlement or instalments
- Worst case Personal insolvency if unpaid
What a personal guarantee actually is
A personal guarantee is a contract in which you promise to meet a company debt if the company does not. It is legally separate from the company’s own liability. That separation is the key point: when the company is liquidated and cannot pay, the condition that triggers your guarantee is met, and the lender turns to you. The guarantee is not a company debt that disappears in liquidation — it is your debt, and the company’s insolvency is precisely the event the guarantee was written to cover.
Personal guarantees are extremely common. Banks routinely require one for overdrafts, loans and asset finance; commercial landlords often require one on a lease; and suppliers may require one before extending trade credit. Many directors sign them years earlier without focusing on the consequences, then are surprised when a guarantee surfaces during the company’s failure. The first practical step when a company is heading towards insolvency is to make a list of every guarantee you have given, so there are no nasty surprises.
What the lender can do
- Demand payment — issue a formal demand for the guaranteed sum.
- Sue you personally — obtain a court judgment if you do not pay or settle.
- Enforce the judgment — against your personal assets, which can include your home if it was charged.
- Petition for your bankruptcy — as a last resort, for a substantial unpaid judgment.
However, the lender must give credit for anything it recovers from the company in the liquidation, and for any security it holds. You are liable for the shortfall, not necessarily the whole headline figure.
How guarantee claims interact with the liquidation
The liquidator deals with the company; the lender deals with you. The guaranteed creditor can claim in the liquidation for the company debt and pursue you for the same debt, but cannot recover more than it is owed in total. As realisations come in, the company may pay a dividend that reduces what you owe under the guarantee. For how those company assets are shared, see what happens to company assets in liquidation.
| Question | Short answer |
|---|---|
| Does liquidation cancel it? | No — it is your separate debt. |
| Who chases me? | The lender, not the liquidator. |
| Do company recoveries help? | Yes — they reduce the shortfall you owe. |
| Can I negotiate? | Often — lenders may accept a settlement. |
Timing — deal with both at once
A frequent mistake is to liquidate the company and only then think about the guarantee. Because the two are linked — what the company pays reduces what you owe — it is usually better to plan for the guarantee at the same time as the company’s insolvency. A licensed insolvency practitioner dealing with the company cannot act for you personally on the guarantee, but they can flag the exposure early so you can take your own advice and open negotiations with the lender before a demand lands.
Your options
Doing nothing is the worst choice, because it usually leads to judgment and enforcement. Most directors instead negotiate: a discounted lump-sum settlement, or an affordable instalment arrangement, sometimes alongside the company’s liquidation. Lenders will often accept less than the full sum where the alternative — pursuing you to bankruptcy — would recover even less. Where the total personal exposure is genuinely unmanageable, personal insolvency solutions such as an individual voluntary arrangement or bankruptcy may be relevant. A personal guarantee is one of several routes to personal liability — see director personal liability for the full picture, and take advice early.
Facing a personal guarantee claim?
A licensed insolvency practitioner can review your exposure and help you plan, often alongside dealing with the company. A short, confidential call is the right first step.
Frequently asked questions
Does liquidating my company cancel my personal guarantee?
No. A personal guarantee is your own separate promise to the lender. The company’s liquidation confirms it cannot pay, which is exactly the event that lets the lender pursue you personally.
Can the lender take my house?
Potentially, if your home was given as security for the guarantee or if a judgment is enforced against it. Whether your home is at risk depends on the guarantee’s wording and what security was taken — have the documents reviewed.
Can I negotiate a personal guarantee?
Often, yes. Lenders will frequently consider a discounted lump-sum settlement or an instalment plan, particularly where pursuing you to bankruptcy would recover less.
Do I still owe the full amount after the company pays a dividend?
No — the lender must give credit for any dividend it receives in the liquidation and for any security it realises. You are liable for the remaining shortfall, up to the guaranteed limit.
Sources & further reading
- GOV.UK — guidance on personal guarantees and director liabilities
- Insolvency Act 1986 — proving and dividends in liquidation
- The Insolvency Service — guidance for company directors
- GOV.UK — options for dealing with debts you cannot pay
This guide is general information, not formal insolvency advice. Your situation must be assessed by a licensed insolvency practitioner before you act.