Independent legal advice on a personal guarantee

If a bank or other lender has asked you to sign a personal guarantee, it will very likely also want a certificate from a solicitor confirming that you’ve had independent legal advice (ILA) on it first. I give that advice by video call, to directors and guarantors anywhere in England and Wales, and sign the certificate the lender needs. The fee is £750 plus VAT per director, per loan.

What a personal guarantee does

A limited company’s debts are normally the company’s own responsibility, but a personal guarantee changes that for a particular debt. You promise the lender that if the company doesn’t pay then you will, and the lender can then pursue you personally, which puts your savings, your other assets and ultimately your home at risk.

Lenders ask for them whenever they’re lending to a company which doesn’t have much of a track record or much security of its own. The most frequent example I see is a landlord who has set up a company to buy property, where the bank will lend to the company but only if the directors guarantee the mortgage. Guarantees are also used for overdrafts, asset finance and ordinary business loans.

The documents are drafted by the lender and they favour the lender. They’re often unlimited in amount unless you ask for a cap, they usually cover everything the company owes that lender and not just one loan, they don’t end when you resign as a director or sell your shares, and they tend to let the lender pursue you without chasing the company first. People do try to get out of guarantees afterwards but it rarely works, and I’ve written about a director who tried three ways out of his guarantee and lost on all three.

Why the lender insists on it

The certificate is mainly for the lender’s benefit, as the lender wants it so that you can’t say later that you didn’t understand what you signed, or that you were pressured into it. The practice comes out of a line of cases on guarantees, the best known being the House of Lords decision in Royal Bank of Scotland v Etridge (No 2) in 2001, and lenders now apply it as a matter of routine to directors as well.

The advice is still useful to you, though, as it’s the one point in the process where someone on your side reads the guarantee and tells you what you’re taking on, what might be negotiable (a cap on the amount is the obvious one) and what questions to put to the lender before you sign. Some people decide not to sign once they’ve had the advice, but most go ahead knowing what they’ve agreed to.

Why your own solicitor can’t do it

Lenders usually require the advice to come from a solicitor at a different firm from the one acting on the loan or the property purchase. I’m not involved in the underlying deal, so I can give it. I do have to check for conflicts first, because all of my work is carried out through Nexa Law Limited, which is authorised and regulated by the Solicitors Regulation Authority. If another Nexa solicitor is acting for the borrower or the lender on the same transaction then I can’t advise, and I’ll tell you straight away.

I’ve advised on guarantees for lending from Barclays, NatWest, RBS, HSBC and Handelsbanken, and from smaller lenders such as Aspen and Sancus, among others. If your lender has its own form of certificate or a letter of instruction, I’ll work to that.

How it works

You send me the documents, I read them, and then you and I meet by video call. I check your identity, go through the guarantee and the loan terms with you, explain what you’re liable for and when, and answer your questions. You need to be on your own for the call, without your co-directors, the broker or anyone from the lender in the room, because part of what I’m confirming is that you’re signing freely.

After the call I sign the certificate or letter and send it to you or to the lender’s solicitors, whichever they’ve asked for. Where the guarantee has to be signed in front of me, that’s done on the call, provided the lender accepts it. Most lenders now do, but you should check with yours.

I only do this by video call and I don’t offer face to face appointments, so if your lender insists on advice in person you’ll need to find a solicitor near you.

What I need from you

• the guarantee, and any legal charge you’re being asked to give with it
• the facility letter or loan agreement (I’ve explained what a facility agreement is if that’s new to you)
• the lender’s or its solicitors’ instructions about the advice and the form of certificate
• photo ID and proof of address
• the date you need to complete by

What it costs

The fee is £750 plus VAT per director and per loan, which is fixed and agreed in writing before I start. If two directors are each guaranteeing the same loan, each of them needs separate advice and a separate call, so that’s two fees. If one director is guaranteeing two separate facilities, that is also two fees.

There’s more background in my article answering the usual questions about independent legal advice certificates.

Next steps

Send me the details, with the lender’s documents and your deadline, and I’ll confirm whether I can act and when I can do the call.