WHAT IS A PERSONAL GUARANTEE (PG)?

A Personal Guarantee is a secondary obligation where an individual (director/shareholder) promises to pay the company’s debt if the company fails.

Key principle

A PG does not automatically make you liable — the creditor must prove:

A valid primary debt
A valid, properly executed guarantee
A triggered liability event
Proper creditor behaviour (no unfairness / misrepresentation)

If the lender fails on any of these points, the PG collapses.

WHY CREDITORS LOVE PERSONAL GUARANTEES

Lenders use PGs because:

They bypass limited liability

A company can fold — a PG keeps the director on the hook.

They reduce the lender’s risk to near zero

Creditors threaten:

Charging Orders
Attachment of Earnings
Bankruptcy
Enforcement agents

This pushes many directors into settlement, even when the PG is defective.

They create leverage

Most PG disputes settle because directors panic.

But a PG is only enforceable if it is valid. Most are NOT.

WHAT MAKES A PERSONAL GUARANTEE VALID?

For a PG to be enforceable, the creditor must prove:

A. The guarantee document exists and is signed

Courts require:

Clear, legible signed document
Correct parties
Terms explained
No ambiguity

If the lender relies on a digital tickbox, a reconstructed document, or unsigned terms → challenge.

B. The terms were clear and brought to the guarantor’s attention

If the PG was hidden within:

a long loan document
an online platform
a sequence of tickboxes

…this is ambiguous and potentially voidable.

C. No misrepresentation

If the lender or broker said anything like:

“This is a standard document”
“It’s just a formality”
“The business is liable, not you personally”
“You won’t personally be chased”

The PG can be voided for misrepresentation.

D. No undue pressure or imbalance

If the lender created urgency:

“Sign today or funding collapses”
“No signature = business failure”

This affects enforceability.

E. Compliance with the primary agreement

A PG is only enforceable if the underlying agreement is enforceable.
If the lender cannot prove the company debt, they cannot enforce the PG.

TO BE VERY WARY OF (RED FLAGS)

These are the triggers that normally destroy PG enforcement:

1. Digital or click-wrap guarantees

Many lenders (Iwoca, Funding Circle, OnStride, etc.) use:

clickboxes
online journey screens
reconstructed PDFs

Courts treat these sceptically unless properly evidenced.

2. No independent legal advice

Not a requirement —
BUT if the guarantee is onerous or unclear, lack of advice weakens enforceability.

3. Hidden guarantees within general terms

If the PG was not explicitly highlighted → voidable.

4. Misleading threats

If the lender created the impression that:

a non-judicial document was a court order
immediate enforcement would happen
no dispute existed
the PG had already crystallised

This becomes a defence asset.

5. Incorrect entity names

If the PG names a trading style (not a legal entity), e.g.:

“Iwoca” instead of Iwoca Ltd

→ The PG can be challenged under contract certainty and identification of parties.

6. Assignment/title defects

If the loan was reassigned without correct notice under LPA 1925 s.136, you attack title — the PG falls with it.

7. Defective Tomlin Orders or Consent Orders

If the creditor uses a fake or defective Tomlin Order to push the PG into payment:

not sealed
not judicially approved
not properly filed

→ Any PG admission inside it collapses.

This is the exact flaw in the Iwoca case.

HOW TO ATTACK A PERSONAL GUARANTEE

STEP 1 — Attack the Primary Agreement

If the company debt is flawed, the PG automatically fails.
Check for:

Errors in the loan contract
Incorrect entity
Missing assignment
Interest miscalculations
Unfair relationship (s.140A CCA if consumer/sole trader)
Defective demands

No valid primary debt = no PG liability.

STEP 2 — Demand Strict Proof of the Guarantee

Ask for:

Original signed PG
Complete audit log (if digital)
IP addresses / timestamps
Clear version of terms
Evidence the PG was explained

Most lenders cannot produce these.

STEP 3 — Attack clarity and prominence

Was the PG hidden in small print?
Was it on page 8 of a long document?
Was it part of a rushed online flow?

If not “plainly and fairly brought to your attention” → voidable.

STEP 4 — Attack misrepresentation or pressure

If the lender or solicitor:

portrayed a document as a court order
claimed there were no defences
pressured you into signing

→ The guarantee can be rescinded for misrepresentation.

STEP 5 — Attack jurisdictional / procedural defects

If the PG was enforced via:

CNBC “orders”
Unsealed Tomlin Orders
Orders not reviewed by a judge

→ Procedural invalidity collapses enforcement.

STEP 6 — Challenge assignment and title

If the debt was securitised, sold, or transferred without proper legal notice, the PG cannot be enforced.

STEP 7 — Apply equitable and contractual defences

Examples:

Lack of consideration
Unfair terms
Contra proferentem (ambiguity interpreted against drafter)
Fiduciary / trust breaches in securitised loans
Failure to mitigate