Recent market developments highlight an increasing trend among alternative lenders and fintech platforms to assign personal guarantees (PGs) to third-party debt purchasers. These lenders assign such debt to de-risk their balance sheets and accelerate recovery on defaulted loans but they are doing so before clients have had a fair opportunity to challenge enforceability.
What is a personal guarantee?
A personal guarantee is a legally binding promise by an individual, often a company director or shareholder, to take responsibility for a company’s debt or obligations if the business itself fails to meet them. In essence, it overrides the usual protection offered by limited liability. If the company defaults, the guarantor’s personal assets (such as savings, property, or investments), can be pursued by the lender.
Who is assigning personal guarantee’s?
- Funding Circle (the SME lending platform) and Capital on Tap (a fintech company operating as a digital lender) are currently among the most active in transferring PG-backed debts to recovery firms such as Azzurro Associates.
- High street banks generally avoid outright PG sales, preferring internal recovery or restructuring.
These assigned debts have been in the press lately due to a legal dispute between Azzurro Associates and personal guarantors of two defaulted loans originated on the Funding Circle platform. The case revolved around two defaulted loans backed by personal guarantees. The guarantors challenged the enforceability of the debt, arguing defects in assignment and Funding Circle’s documentation, sparking a High Court battle between Azzurro and the guarantors Funding Circle. The High Court initially indicated the guarantors had a “real prospect of success” in contesting payment. Ultimately, the case was settled in October 2025 when guarantors made a payment exceeding the outstanding loan balance, validating the debt assignment process.
Why this case matters
- Personal guarantees remain enforceable: despite procedural challenges, the settlement confirms their legal strength.
- Documentation is critical: ambiguities in assignment or guarantee wording can lead to costly litigation.
- Market confidence restored: the outcome reassures lenders and investors about secondary debt market stability.
Regulatory move to improve protections
The Lending Standards Board (LSB) introduced enhanced protections for guarantors effective September 2025:
- annual reminders for guarantors; and
- clearer disclosure of assignment rights in loan agreements.
Whilst these steps may improve transparency, guarantors clearly need to be wary in the event of any default on the underlying loans guaranteed by their PGs.
What should you do?
PGs are often required as a way to ensure the individuals behind corporate entities are forced to engage with lenders. Try to maintain an open and transparent dialogue with your lender.
- If you are asked to give a PG or you/your company are entering into a loan supported by a PG:
- take legal advice on the loan agreement to confirm whether assignment rights are clearly disclosed and understood before signing. If at all possible, limit the lender’s ability to assign PGs to third parties and negotiate terms such as caps on liability or time limits;
- keep copies of all agreements and notices in the event that you may need to challenge improper assignments; and
- if you default or are likely to default on a loan, act promptly to understand your exposure before assignment occurs. If you receive an enforcement notice, act early.
- If you are a lender, ensure:
- your documentation is updated to reflect LSB requirements and avoid ambiguity that could lead to litigation;
- the agreements are properly executed.
Final thoughts
Personal guarantees are powerful tools in commercial transactions, but they carry significant personal risk. Always review the terms carefully and consider whether the benefit to your business outweighs the potential exposure to your personal assets.
How Moore Barlow can help
Our Corporate law solicitors can help your business navigate complex legal issues, such as mergers and acquisitions, corporate restructuring, and governance. We provide tailored advice and support to ensure your business operates within the law and achieves its objectives. With our expertise, you can focus on growing your business while we handle the legal complexities.
