One of the questions we are often asked by our clients is:
"can we enforce a personal guarantee given by a director
of a company in circumstances where the company is placed into
voluntary administration?". In short, the answer is
Directors are generally required to give personal guarantees for
company's debts and obligations in loan, lease or other finance
arrangements. In such circumstances, the director will be
personally liable for the company's debt or commitment if the
company does not meet that obligation because the guarantee is a
separate agreement between the director and the creditor. Most
commonly, director guarantees are contained in the terms and
conditions of the facility sought by the company; however, there
may be some occasions where the director guarantee is detailed in a
If a company goes into liquidation and the creditor has obtained
a personal guarantee from the director, then the creditor has the
right to exercise and enforce the guarantee given by the director.
The creditor is not obliged to await the outcome of the
company's liquidation; they can pursue the debt immediately
through enforcing the personal guarantee given by the director,
regardless of any proposed distribution from the liquidation.
On the other hand, in circumstances where the company is placed
into voluntary administration, the creditor cannot exercise or seek
to enforce a personal guarantee given by the company's:
spouse, de-facto or relative of a director(s),
whilst the company remains in voluntary administration. Once the
voluntary administration is terminated, the creditor has the right
to pursue any guarantees that it obtained from the director of the
company or any related party as the case may be.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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