Personal Guarantees

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Personal-Guarantees

How to deal with a Personal Guarantee

It is a very common practice for a company director to provide a personal guarantee in order to obtain finance for leases, bank loans or supplier credit for the benefit of the company. At the time of signing the personal guarantee with the financial institution, there is no thought given that at some point in the future, the company may be in a position where it is unable to meet the liability, and that the company debt will become the director’s personal liability.

Have you signed a personal guarantee?

Perhaps you are already receiving correspondence from the bank or other financial institution ‘calling on your personal guarantee’, demanding payment from you for your company’s debt, lease liability, bank or finance facility?

Will you lose your family home to a company creditor?

Not necessarily. You must ask yourself this question: ‘Was your commitment to a personal guarantee provided ‘legally’, and if not, are you therefore ‘legally’ liable for the repayment of the money’? Not always.

Many company directors use the limited company shield as a valid device for protecting their own personal liability. However, it has become a common practice for lenders to require a director to provide a personal guarantee, or even a second charge over the director’s personal property, to secure the borrowings of the company. Business owners and directors expect their businesses to be successful and, at the time of providing a personal guarantee, do not take into account the implications if that personal guarantee is called upon.

With personal guarantees, banks are notoriously tardy with their paperwork or otherwise inept at arranging the personal guarantee legally in the first place. This is where Rebuild Now come in – with our help, your personal guarantee problems may be alleviated once and for all.

Many personal guarantee cases are ‘lost’ before they even begin because, under threats from the bank, the ‘customer’ provides an offer of payment without the knowledge that there may be a defence to the bank’s claim. Most personal guarantees are limited to a ‘value’ and so the director will know the extent of his liability. When a business becomes insolvent, any assets securing debt are realised to pay off the loan. Any amount not so discharged then falls upon the directors under their personal guarantee to clear the remaining debt.

There are options available to protect directors facing bankruptcy as a result of entering into a personal guarantee. It may even be possible to negotiate with a lender and to carry any debt across into a new venture, thereby obviating a need to discharge the personal guarantee immediately. It is imperative for a director to avoid bankruptcy if the intention is to carry on the business, as a bankrupt cannot hold the office of director.

Personal Guarantees… what Rebuild Now can do for you…

Rebuild Now can formulate a strategy and identify the relevant case law to delay the bank – and prevent you from making offers which may have the effect of destroying any defence. We can give you the strength and technical position which may cause the bank to discontinue any claim made against you. Each individual case ‘turns on’ its own facts and full information. The ‘full’ information is rarely immediately available to obtain the correct advice. Therefore, telephone advice sought or taken by the guarantor at the time of a ‘call’ by the bank on the personal guarantee is a very risky strategy for any personal guarantee provider – and should be avoided at all costs.

The current practice (for all banks) is that their debt recovery units request a signed asset/expenditure form or personal financial statement. This is now requested by banks immediately at or after demand has been made on a personal guarantee. That’s because a signed form of that nature will provide the bank with their first ‘counter’ to any possible defence to their claim. Signing any financial disclosure or providing the bank with such personal information will prejudice, and could destroy, any later attempt to negotiate the debt itself or to defend the debt at all. Telephone communication with the bank that takes place during this period are recorded so the bank is able to counter any later attempt to defend against their personal guarantee debt claim.

The enforcement of director’s personal guarantees (offered to support a borrower’s covenant) is becoming more widespread. The use of bankruptcy proceeings can be a fast and direct method of enforcement if a guarantor refuses to pay. This avenue is likely to be followed more often as lenders seek to recover debt from failed businesses by enforcing personal guarantees and taking over the personal guarantor’s assets.

If you have a personal guarantee in place with a bank, and have received the bank’s demand for payment, you should not attempt to negotiate with the bank … or attempt to answer the demand in any way … without professional assistance. Rebuild Now can identify your personal exposure, possible defences and the actions required, as well as dealing directly with the bank on your behalf. Call now on 1300 520 907 .

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Remember the Liquidators work for the Creditors, not for you. That’s their job. It costs you nothing to talk to us.

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