It’s entirely true that most small businesses gain their initial funding from personal guarantees for loans. Often as not from housing equity too. But it’s also usual that once a business gets to a certain size those are no longer used. Rather the point of all that limited liability for shareholders and so on – potential losses are limited to the capital that has been paid in.
Jamie Oliver, at best, appears to have received some extremely bad advice here:
Banks to go after Jamie Oliver personally as restaurant empire collapses with 1,000 jobs lost
Well, no, they’re not “going after him”. He offered:
Banks and one of Britain’s biggest food suppliers are poised to pursue Jamie Oliver over debts after the chef’s empire of restaurants collapsed. The Daily Telegraph understands Mr Oliver provided personal guarantees to lending giant HSBC and distributor Brakes after a previous restructuring, allowing them to claim against him personally for any unpaid bills. Administrators were called in as Mr Oliver’s portfolio of restaurants failed, costing 1,000 jobs and leaving HSBC tens of millions of pounds out of pocket. A further 300 jobs are at risk.
He said that he would personally guarantee debts to those two creditors – that’s the implication of what is being said at least. Well, if he’s done that then he is indeed personally guaranteeing those debts.
The problem with this is the following. They’re very rarely capped such guarantees. One could, in theory, have an agreement which said “I’m liable up to debts of £3 million” say. And it’s been oft reported that Oliver put £3 million of his own funds in during that last restructuring. But it’s rare that such caps are put on such guarantees. They’re usually much more like the Lloyd’s stuff of old, down to your last cufflinks. Not because it has to be but that’s just how the usual language works.
Of course, this is vastly speculative. But it wouldn’t surprise at all to find that Jamie’s “putting personal funds in” was in fact a guarantee. And one that wasn’t capped even if only to those two creditors. Which could end up being very painful indeed.