Personal Guarantees

Guarantees are commonplace security instruments in many commercial deals, and they have a particular prevalence in Limited Company lending. There are a variety of types of guarantees but the one which is used in asset backed lending is known as the “on demand” guarantees.

On demand guarantees are a separate document which is entered into between the guarantor and the lender. As mentioned above, these types of guarantees are typically used in Limited Company lending. The nature of the guarantee is to remove the protection offered to by the Limited Company making the guarantors of the guarantee personally responsible for the lending debt issued by the bank or building society.

As the name suggests, an on demand guarantee does not require any specific performance rather, in the event of a breach of the lending conditions, the bank or building society who the guarantee is in favour of, can call up the personal guarantee and demand that the guarantors under the personal guarantee remedy any breach. There is no requirement for interventions of the Courts to enforce the terms of the guarantee, written demand by the holder of the personal guarantee informing the guarantor of the default is sufficient.

It is also a requirement of the guarantee that the guarantor receives independent legal advice on the nature and effects of the personal guarantee.

For further information on personal guarantees or for independent legal advice please contact Fallon Sara Spencer , Principal and Head of Specialist Lending.