Many directors, particularly of new companies, find themselves being required to provide a director guarantee. There are typical situations where a director guarantee is something that is often requested, for example where there is substantial lending to the company. However, there can be slightly less obvious scenarios, like when suppliers ask a director to provide a director guarantee that any due payments will be paid.
Why would a director guarantee be needed?
A director guarantee is typically requested when a supplier or creditor wants to ensure that payment will be made. A limited company, as its own legal entity, could potentially fail to pay and collapse, leaving the supplier without their owed money.
Any individual being asked to provide a director guarantee should obtain advice from a specialist lawyer such as https://www.parachutelaw.co.uk/director-guarantee.
Equally, any supplier of goods or services to a new company may want to consider requesting a director guarantee.
Key considerations when giving a director guarantee
Although a director guarantee can be viewed as commonplace, it should be noted that there are complaints and concerns about the behaviour of some lenders. The Federation of Small Businesses has been championing complaints to review the approach taken when it comes to director guarantees.
Any individual being asked to provide a personal guarantee or signing on behalf of a company should look carefully at what they are signing in case they are accidentally providing a director guarantee.
In addition, any guarantees given should be reviewed on a regular basis to request that these be released, particularly where the company has begun to establish its own reputation or where there has been a change of directorship. Remember, leaving as a director does not automatically eliminate a director guarantee.