Capittal's view: what happens to your personal guarantees when you sell your company

Quick answer

Capittal's view is that your personal guarantees survive the sale of the company: signing the sale agreement does not cancel them, and you remain liable with your own assets until each creditor releases you expressly and in writing. That is why the release of guarantees is negotiated as a condition of the sale agreement itself, with a named owner, a deadline and a consequence if it is not met.

Why does selling my shares not cancel the guarantee I signed with the bank?

Because the guarantee is a contract separate from the one that links you to your company. When you act as guarantor, you take on a personal obligation towards the bank, not towards the company. The bank holds a right against you that nobody can take away without its consent.

Selling shares changes who owns the company. It does not change who signed the surety. The debt still belongs to the company and the guarantee is still yours.

The Spanish Civil Code is clear on the mechanism: for someone else to take your place in an obligation, the creditor has to accept it. That substitution is called novación subjetiva (novation by change of debtor) and requires the bank to say yes. Without that yes, an agreement between you and the buyer only has internal effect: the buyer promises to pay you if the bank enforces against you, but the bank still comes after you.

The practical consequence is uncomfortable. You may have collected the price, stopped being a shareholder and lost access to the accounts, and still be guaranteeing a credit facility that is renewed by a third party you no longer control.

Which guarantees do I have to inventory before going to market?

Almost every owner remembers the bank guarantee and forgets half of the rest. The inventory has to be done before opening the process, not once the buyer is already in due diligence.

• Credit facilities and bank loans, including those that renew automatically every year.
• Leasing and renting of machinery, vehicles and installations.
• Confirming, factoring and discount lines, where the guarantee is usually in the small print of the framework agreement.
• Lease agreements for the industrial unit, office or premises with a personal guarantee from the shareholder.
• Guarantees given to public authorities: public contracts, grants, deferrals with the tax authority or social security, licences.
• Guarantees with suppliers: trade credit lines, supply contracts with a personal surety, distribution agreements.
• Cross guarantees with other group companies or with the family's asset-holding companies.
• Mortgages over personal assets securing company debt.

One piece of information matters above all the rest: who the creditor is and what it requires in order to release you. That is the real counterparty, not the buyer.

What is the difference between release, substitution and a counter-indemnity?

They are three different things and only one takes you out of the risk entirely. Confusing them is the most expensive mistake in this part of the negotiation.

Mechanism	Who has to accept it	Your risk afterwards	When it is used
Release of the guarantee	The creditor: bank, landlord or supplier	None: you stop being a guarantor	The default objective in any sale
Substitution by the buyer	The creditor, which accepts the new guarantor	None if your release is simultaneous and express	Buyer with proven financial standing
Counter-indemnity from the buyer	Only the buyer	High: you remain liable towards the creditor	A bridging solution, never a definitive one
Repayment of the debt at closing	Nobody else: it is paid and extinguished	None once repaid	Small debt or refinanced by the buyer
On-demand bank guarantee in your favour	The buyer's bank	Low: the creditor can enforce against you, but you are paid at the same time	The creditor refuses to release you

The buyer's counter-indemnity is the usual trap. It sounds reasonable across the table and is worth nothing if the buyer goes into insolvency exactly when the bank calls on you.

Should the release be a condition to signing or is a commitment enough?

Ideally the bank release should be a condition precedent to closing: the transfer is not signed until the bank confirms in writing that you are out. It is the only formula that removes the risk completely, because you reach closing already released.

In practice it is not always achievable. Bank risk committees move at their own pace and a deal does not stop for one credit facility. When a condition precedent is not viable, the acceptable alternative is a post-closing obligation with three elements.

• A fixed deadline to obtain each release, with a specific date and a named list of guarantees.
• Full indemnity from the buyer: if the creditor claims against you, the buyer pays immediately and without prior discussion.
• A real consequence for breach: a financial penalty, retention of part of the price in escrow that is only released when the bank's letter arrives, or set-off against the deferred price if there is one.

A commitment with no deadline and no penalty is not protection. It is a goodwill sentence that ages very quickly.

What do I do if the bank refuses to release me?

First, understand why. The bank is not holding on to you out of whim: it usually takes the view that the buyer is less creditworthy than you, or that the deal changes the company's risk profile. That diagnosis determines the way out.

• Repay and refinance at closing. The buyer repays the guaranteed debt with its own financing. It is the cleanest solution and the one that works most often.
• Reduce the perimeter. If you cannot get out of everything, get out of the large items and leave alive only the smaller ones with a near-term maturity.
• Set a final maturity date. Negotiate that the facility will not be renewed beyond a given date, so that your exposure switches itself off.
• Require an on-demand bank guarantee from the buyer's bank in your favour, for the guaranteed amount.
• Hold back price in escrow for the outstanding amount of the guarantee until it is resolved.
• Present the case to the bank with the buyer in the room. Sitting the buyer down with your branch manager, with accounts and a plan on the table, unblocks more files than ten emails.

Start these conversations at the same time as due diligence. Leaving them for closing week strips you of all your negotiating power.

What risk do I run if I keep guaranteeing a leveraged buyer?

The risk is that you are financing with your own assets a company you no longer run. If the buyer has bought with debt, the company comes out of the deal more indebted than it went in and with less margin for error.

At that point your guarantee changes in nature. Before, you were guaranteeing your own decisions on a balance sheet you knew. Now you are guaranteeing someone else's decisions on a balance sheet you cannot see.

There are three signals that call for extra care. The first is a buyer financing a large part of the price with debt supported by the company itself. The second is resistance to having its parent company or its shareholders replace your signature. The third is treating the release of guarantees as a minor matter to be sorted out after closing.

Selling the company and continuing to guarantee it is the worst of both worlds: you lose control and you keep the liability.

What is the next step if I have signed guarantees and I am thinking about selling?

Draw up the inventory of guarantees before speaking to any buyer. With that list you will know what part of the price is really at risk and which creditors will set the timetable of the deal.

At Capittal Transacciones we work on that map within the confidential valuation we prepare for owners considering a sale. We are a mid-market M&A boutique operating in the approximate range of 3 to 250 million euros, with eight offices in Spain (Barcelona as headquarters, Madrid, Girona, Lleida, Tarragona, Palma, Zaragoza and Valencia) and we are part of the NRRO group. The partner handles each mandate directly, including these conversations with banks and suppliers, which are rarely resolved by email.