Company Directors Beware
November 13, 2013

By Jennifer White, Partner in our Commercial and Business Law Department

‘The UK is set to grow faster than any other Western economy’ (BBC) and ‘business lending by high street banks rose in September at its strongest pace in four years…’ (FT.com).

This is obviously great news for businesses that need to secure finance.

Company directors however should beware. Loans to companies are always nearly always secured by personal guarantees from the directors, usually in addition to other forms of security. Whilst the economy is growing, everyone is full of confidence and optimism and the terms of the guarantee are often either overlooked or the significance of the terms are not given sufficient importance. An illustration of this is a recent case where a director of a company resigned and, nearly seven years after his resignation he has been found liable for company debts that accrued after his resignation.

The Court of Appeal held that, under the terms of the guarantee, the director had guaranteed ‘all sums that are now or may hereafter become owing’. As no limit had been placed on guarantee, the director remained liable even though £300,000 had accrued after his resignation.

It is important to ensure that legal advice is always taken prior to entering into any guarantees.