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Can I use a director redundancy payment to settle my personal guarantees?

Posted on: Friday 29th June, 2018


Can I use a director redundancy payment to settle my personal guarantees?

Should you qualify for director redundancy, you can use this payment for any purpose you wish. Some people use this to fund the cost of the liquidation of their company; others put it towards a future business venture; while other individuals use it to pay down their personal debts, including personal guarantees.

What are personal guarantees?

Simply put, signing a personal guarantee (PG) removes the limited liability enjoyed by a company by making the director responsible for paying back the loan should the company be unable to do so itself. While the insolvent liquidation of a limited company will wipe out any debts it owes, those that have been personally guaranteed will remain in force, with the onus for payment moving from the company and over to the director.

Why would I have signed a personal guarantee?

Quite often banks will only be willing to lend money to a newly established company, or one with a patchy credit history, if a PG is given as security for the borrowing. This is to give the bank a safety net should the company become insolvent and subsequently enter liquidation. While directors may be hesitant about signing this type of agreement, sometimes it is the only way to secure the vital funding you need to get your company off the ground. As long as your company remains active and is meeting the monthly repayments on this borrowing, the PG will not come into force and the company will be responsible for the loan. It is only if the company defaults on its obligations that the PG will be triggered.

What if I cannot pay my personally guaranteed debts?

Once a PG is triggered, the individual who signed this agreement then becomes responsible for making the monthly payments. But what happens if you cannot afford to pay what is asked of you? A personally guaranteed debt will be treated the same as any other form of personal debt, and the channels creditors can use to pursue you for this money are the same. This means you may have defaults registered on your credit file, a County Court Judgment (CCJ) issued against you, and as a last resort your creditor may petition for your bankruptcy. Failure to pay your personally guaranteed debts can have serious repercussions on you and your credit file, so you should use every resource at your disposal to clear the amount owed.

How can director redundancy help me settle my personal guarantees?

When you have lost your business, and with it perhaps your main source of income, being chased for a loan or overdraft you have personally guaranteed can push you over the edge financially. With an average claim value of £12,000, a director redundancy payment can be a huge financial lifeline at this distressing time. Depending on the scale of your redundancy payment which is calculated based upon how long your company has been incorporated and the salary you earned during this time, this may be enough to clear your personally guaranteed debts in full, or alternatively make a significant dent in them and help ease the financial burden considerably.

Do I qualify for director redundancy?

The qualification process for director redundancy is determined by a variety of factors including your age, length of service, salary, and hours worked. Our expert advisers will be able to quickly establish whether you meet the criteria, and if so, let you know how much you may be entitled to. We can then lead you through the entire process from start to finish with your dedicated claims manager on hand to answer any questions you may have. Call us today on 0800 063 9261 to discover how much you may be in line to receive, or to start your claim.


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