When there’s multiple business partners or directors, most guarantees are expressed to be joint and several.
A joint and several guarantee means each guarantor is liable for the full debt.
It doesn’t matter how much work each puts into the business, how much they own or whether that’s fair. Banks can claim repayment of the entire debt from any of the guarantors. They can pick and choose.
That’s not quite the end of it. If the bank recovers the full debt from one guarantor, that guarantor may be able to pursue the other guarantors for their share of the debt. However, if a bank has decided to chase only one guarantor, it may that the other don’t have any money or assets, making it pointless for the bank – and that unfortunate guarantor – to chase them.
Know what you’re getting into
If you’re being asked to give a personal guarantee, speak to us before signing anything.
What’s a guarantee?
A personal guarantee is an agreement from one person to pay the liabilities of some third party.
Very common in financing documents with banks.