What Happens to Director Guarantees in a CVA?

A CVA can rescue the company, but it does not automatically rescue you. A director’s personal guarantee is a separate agreement with a creditor, and entering into a Company Voluntary Arrangement does not automatically release that obligation.

Imagine this: the business is drafting its CVA proposal when the bank quietly reminds you of the overdraft guarantee, or the landlord’s solicitor sends a letter referring to the rent guarantee you signed. That moment is when many directors realise that while a CVA restructures company debt, personal guarantees can remain a separate issue.

The sections below explain how personal guarantees interact with a CVA, when creditors may rely on them, and the practical options available if you are exposed.

Quick verdict: does a CVA wipe out your personal guarantee?

Usually not. A Company Voluntary Arrangement restructures the company’s debts, but a personal guarantee is a separate contract between the director and the creditor.

At a glance

• A CVA restructures the company’s debts through a legally binding agreement with creditors.
• A personal guarantee remains a separate agreement between the creditor and the individual who signed it.
• Creditors may rely on that guarantee if the company does not meet the relevant obligations.
• Any release or variation of a guarantee normally requires agreement with the creditor.

The following sections explain why guarantees sit outside a CVA and what directors can do to manage the risk.

How a CVA restructures company debt (and where its power stops)

A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows a company in financial difficulty to reach an agreement with its creditors to repay debts over time.

The process is arranged through a licensed insolvency practitioner, who helps prepare the proposal and oversees the arrangement if it is approved.

Creditors are asked to vote on the proposal. If at least 75% (by value) of the creditors who vote approve it, the CVA becomes legally binding on the company and those creditors.

Under the arrangement, the company normally makes agreed payments over a defined period instead of paying debts in full immediately.

Key points to remember:

• A CVA is a formal agreement between the company and its creditors.
• It is supervised by a licensed insolvency practitioner.
• If the agreed payment schedule is not maintained, creditors can take further action against the company.

Importantly, the CVA deals with the company’s obligations to its creditors. Separate agreements involving individuals,  such as personal guarantees, are not automatically altered by the CVA.

What exactly is a director’s personal guarantee?

A personal guarantee is a legally binding agreement in which an individual promises to repay a company’s debt if the company cannot meet its obligations.

Directors are often asked to provide guarantees when a business takes out credit or signs significant contracts. By signing one, the director accepts personal liability if the company fails to pay.

Typical creditors that request guarantees include:

• Banks providing overdrafts or loans
• Commercial landlords
• Asset finance providers
• Trade suppliers offering credit terms
• Invoice finance or factoring companies

Personal guarantees vary in structure depending on the agreement.

Limited-sum vs all-monies guarantees

• Limited-sum guarantee: liability is capped at a specific amount.
• All-monies guarantee: liability may cover all current and future balances owed to the creditor.

Secured vs unsecured guarantees

• Secured guarantee: supported by a charge over an asset, such as property.
• Unsecured guarantee: relies on the contractual promise of the guarantor.

Because guarantees are contractual agreements, their enforceability depends on the terms of the document and the circumstances of the debt.

Why a CVA does not automatically cancel personal guarantees

A CVA restructures the relationship between the company and its creditors, but a personal guarantee is a separate agreement between the creditor and the guarantor.

Because of that separation, the guarantee is not automatically altered by the CVA.

The legal split, side by side

	Company Voluntary Arrangement	Personal guarantee
Parties involved	Company and its creditors	Guarantor and creditor
Debt affected	Company debts included in the CVA proposal	Personal liability under the guarantee
Contract	Insolvency agreement supervised by an IP	Separate contractual obligation

In practical terms, this means the CVA may restructure how the company repays its debts, while the guarantee agreement continues to exist unless the creditor agrees to change it.

Because of this, directors often review any guarantees carefully when planning a CVA.

When might guarantees become relevant during the CVA process?

Creditors sometimes review guarantees when a company proposes a restructuring arrangement such as a CVA.

This may happen:

• When the creditor becomes aware of financial difficulty
• During discussions about the CVA proposal
• If the company fails to meet obligations under the relevant agreement
• If the company does not maintain payments under the CVA

How and when a creditor relies on a guarantee depends on the wording of the guarantee and the creditor’s commercial decision.

Your options if a creditor relies on your guarantee

If a creditor looks to enforce a personal guarantee, several options may be considered depending on the situation.

Option	Potential advantages	Considerations
Negotiated settlement	May resolve the issue quickly	Requires available funds
Payment plan	Spreads the cost over time	May include additional interest
Personal refinancing	Converts liability into structured borrowing	Increases personal debt
Company indemnity	Company may reimburse the guarantor	Only viable if the company remains financially stable
Personal insolvency options	Formal procedures may address personal debts	Legal and financial consequences

Before taking any step, directors should seek advice from a licensed insolvency practitioner or solicitor.

How to negotiate a settlement or release

If a creditor is willing to discuss the guarantee, a negotiated agreement may sometimes be possible.

Typical steps include:

1. Confirm the balance involved

Establish the current debt position, including any interest or costs.

2. Open communication early

Early discussions may increase the chances of reaching a practical solution.

3. Understand the creditor’s position

Creditors will usually consider the likelihood of recovery when deciding whether to negotiate.

4. Make a realistic proposal

Offers that reflect available funds or assets are more likely to be considered.

5. Record any agreement properly

If a creditor agrees to release or vary a guarantee, the change should be documented formally.

Alternatives to a CVA if personal guarantee exposure is high

In some cases, directors review other options before deciding whether a CVA is the best route.

Possible alternatives include:

Procedure	Company outcome	Impact on guarantees
Administration	Company enters a formal insolvency process managed by an administrator	Guarantees remain separate agreements
Creditors’ voluntary liquidation	Company stops trading and assets are realised	Guarantees may become relevant if company debts remain unpaid
Refinancing or investment	Company restructures debts without entering insolvency	Guarantees may remain unless renegotiated

Each option has different legal and financial implications, so professional advice is important.

Pitfalls and myths directors should avoid

Misunderstanding personal guarantees can create serious personal financial risk.

Common misconceptions include:

• “A limited company always protects me personally.” Signing a guarantee creates a separate personal obligation.
• “Entering a CVA automatically removes the guarantee.” Guarantees usually remain separate contractual agreements.
• “If the company survives, the guarantee no longer matters.” The guarantee remains governed by its own terms.
• “Verbal agreements are enough.” Any changes to a guarantee should normally be documented clearly.

Understanding the exact wording of each guarantee is essential.

7-step checklist before approving a CVA

Directors considering a CVA should review their personal exposure carefully.

1. Identify every personal guarantee – List all guarantees connected to loans, leases, and supplier agreements.
2. Review the wording of each agreement – Check liability limits and enforcement provisions.
3. Assess personal financial exposure – Understand what assets could potentially be affected.
4. Speak with an insolvency practitioner – An IP can explain how the CVA interacts with creditor claims.
5. Communicate with major creditors – Understanding their position can help avoid surprises.
6. Consider whether guarantees can be renegotiated – Some creditors may discuss variations.
7. Obtain professional advice before signing documents – Legal advice is often essential where personal guarantees exist.

FAQs

Your next step: speak to a licensed insolvency practitioner

If you are considering a CVA and have signed personal guarantees, professional advice is essential.

A licensed insolvency practitioner can help you:

• Identify all guarantees connected to the business
• Assess potential personal exposure
• Explain how the CVA may affect creditors’ recovery options
• Explore alternative procedures if necessary

Getting advice early can help you understand both the company’s position and your personal financial risk.