# To what extent is a personal guarantee enforced? bank error?



## ripdot (26 Sep 2011)

To cut a long story short:
Publican turned developer has Company A, which now has lots of assets, no buyers, and lots of debts (circa 1 million).  Ideally they should have been liquidated a long time ago, but instead they took out loans left right and centre to service their considerable debts.  The husband and wife, who are both Directors of Company A, have both given personal guarantees to get company loans - husband gave it for initial loan that enabled him to get into developing, and wife went guarantor for a considerable  personal loan that her husband got some years later to service this debt.  No legal advice was obtained for either case, they waived this in signed declarations.
Revenue are now pushing for payment of a settlement with them, both personally and by the company, so tipping point has arrived. 

They've asked me to give them some advice on this before going to the experts and really...I don't know what to say.  It looks to me like there is zero silver lining here.  Can these personal guarantees mean that they will lose their family business and family home? There isn't a specific mention of family home or the family business (pub) in the guarantee - does that matter? I can't find any newspaper reports of people loosing their family home where they give personal guarantees for debts - does this mean it isn't happening?  Would a guarantor simply be expected to pay what they can towards the debt, or is a charge put over their property, or what happens in practice?

Not looking for loopholes here, they know they're screwed, they just want to get a clearer picture of what lies ahead.


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## Brendan Burgess (26 Sep 2011)

It sounds as if they knew what they were doing. 

The banks will, and should,  pursue the debt and the guarantee. 

The bank will get a judgment for the personal guarantee. 

They will then register that judgment on the family home, if there is equity in it. 

They may stop at that knowing that they will get paid if and when the family home is sold. Or they may insist that the family home be sold.

Brendan


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## 44brendan (26 Sep 2011)

Bank guarantees are fairly comprehensive documents. Given that legal advice was waived it would be difficult for either party to successfully contest the validy of the guarantee. Existence of the guarantee makes them effectively personally liable for the borrowings of the company up to the amount of the guarantee. The Revenue position is probably the more pressing as they have comprehensive powers of enforceability that they are not afraid of using. 
The only apparent light at the end of this tunnell is that the Banks or Revenue are unlikely to progress to sale of the family home. Both are likely to progress against all other assets and will probably place a judgement mortgage on the PDH in time. Best approach for the clients now is to prepare a full statement of affairs and income and outgoings statement. Ideally they should involve a professional advisor or MABS in approaching the Revenue and the Banks.


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## ripdot (26 Sep 2011)

Thanks.  They're going to professional tomorrow, but have asked me to take a look at the loan agreements this evening first and basically spell it out for them in ladybird book format what is owed to whom, by whom, and what security was used.  They have a severe case of not being able to see wood for trees at the moment, and don't even seem to know what assets are tied up in the mess.

So.  What I'm taking from the above - they're likely to kiss goodbye to pub, but might be able to continue living in their home, just with a judgment mortgage registered on it? It is far from a mansion, and isn't in a good location, I doubt any bank would see any point in selling in out from under them in the current climate.

The husband is at retirement age, and wife nearing it.  They have no pensions or savings, having viewed their personally owned property (accumulated since early 90's but all tied up as security for loans now) as their pensions. In bankruptcy proceedings is it possible to have an allowance made for reasonable living expenses going forwards where they aren't of a "pick yourself up and start again" age?


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## 44brendan (26 Sep 2011)

An unfortunate but not unusual position. I don't see bankruptcy as being a realistic option at present (unless laws change) for either the bank or the borrowers. Both Banks and Revenue are realistic and provided that people are open and honest in presenting their financial position will be prepared to agree to a deal where reasonable living expenses are retained. Better to approach this with all information to hand and on the basis of full co-operation provided that a deal can be done where the parties are allowed to remain in their home and retain a reasonable element of their income to cover their expenses.


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## ripdot (26 Sep 2011)

Ah of course...because bankruptcy would mean their house would go.  Is there a chance that going into liquidation would set off bankruptcy proceedings, seeing as they are so closely linked to the company personally?

Might it then be better to NOT liquidate and to continue trying to pay debts of the company with funds from other enterprise like the pub? Revenue from the pub is what is paying little bits of the company loans at the moment, but isn't even sufficient to cover interest payments. Not liquidating is really only prolonging the agony isn't it....


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## Brendan Burgess (26 Sep 2011)

HI Ripdot

I am confused. Can you list out roughly what assets they have and what loans are against each asset. 

I had assumed that the company owned the pub. But it seems to be a separate business. 

Brendan


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## ClubMan (26 Sep 2011)

Not liquidating may not be an option if they are in danger of (or are already?) trading recklessly? And could there be _CRO _implications (academic or otherwise) here if they are?


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## 44brendan (26 Sep 2011)

There are very few bankruptcy proceedings progressed in Ireland due to the lack of changes in legislation which tends to be both complex and benefits neither creditors nor debtors. Liquidation of the company is likely to be a necessity as they inference from the information you have given is that it is insolvent, illiquid and lossmaking. However given the presence of personal guarantees liquidation is only a part of the process. Assuming that the Bank have a charge over the premises they are likely to appoint a receiver who will take over the premises and decide to either sell it or continue operating it. If it is still capable of contributing towards the loan repayments they could well retain the borrowers as employees pending sale of the property. A closed pub is not an attractive sale. Having said that if the pub is in  a rural location and follows the trend of the sector it may well not be viable as a going concern.


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## ripdot (26 Sep 2011)

Yes the pub is a separate business, has been in family for over 100 yrs. It's owned jointly by husband and wife, and as they both gave personal guarantees for loans to fund the property development/building company I think this is probably at risk.  It isn't explicitly mentioned as being security in the loan documents.  While it is in a rural area, I would imagine that it is profitable.  They don't have big staffing overheads as they work in it themselves and only hire extra staff when necessary.  The pub is quite large and is the go to place for functions due to having the space, having a restaurant for food, and having rooms overhead.  So they are busier then the usual rural pub.

They have a small farm of poor land, again a long term family business.  Owned personally by husband, and portions of it have been mortgaged with personal loans* whose purpose was to fund the development company.  Because of the personal guarantee given by the husband as security to company loan when originally setting up the development company, I think the farm is probably deemed as security to the loans taken out by the development company, despite not being explicitly listed in the security section.

*_there are several personal loans taken out by company directors to finance the building company. There is only one huge loan taken out in 2004 that is in the name of the company, and the husband gave a personal guarantee for it._

The husband and wife own numerous development sites personally (mostly in husbands name but some jointly), all of which have been tied up as security for a personal loan taken out by husband in 2008 to finance the repayments on the company loan.  His wife went guarantor for that loan.  It wasn't drawn down as such, but kept by the bank to cover repayments on the company loan taken out in 2004. Most of these site still have personal mortgages outstanding on them.

The company itself owns several properties that it developed. Their current market value is less than the amount borrowed to develop the properties. 

It's a right mess!


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## ripdot (27 Sep 2011)

OK I looked over the banking documents last night for them. They gave what they thought was a personal guarantee for their companies borrowings. However I think I might have spotted an error in the guarantee - what do ye think of the below....

In the section of the the loan document where security is listed there is clause* 3 (vi)* re a mortgage protection policy on the life of Mr. X, and clause *3 (vii) *stating "the Guarantee and Indemnity of Mr. X to Bank X on the Standard Guarantee Form".

Then on the Standard Guarantee Form it says "I hereby confirm and acknowledge that the security specified at paragraph* 3 (vi)* of the section headed "Security" above shall secure all sums due or owing to the Bank by the Borrower from time to time including without limitation, amounts owing by the Borrower under this facility letter."

I know the intention of the Bank was to get Mr. X to give a personal guarantee, and Mr. X signed the document thinking that is what he was giving...but does the above numbering error mean he hasn't actually given a personal guarantee at all?

Please say yes...


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## hastalavista (27 Sep 2011)

ripdot said:


> OK I looked over the banking documents last night for them. They gave what they thought was a personal guarantee for their companies borrowings. However I think I might have spotted an error in the guarantee - what do ye think of the below....
> 
> In the section of the the loan document where security is listed there is clause* 3 (vi)* re a mortgage protection policy on the life of Mr. X, and clause *3 (vii) *stating "the Guarantee and Indemnity of Mr. X to Bank X on the Standard Guarantee Form".
> 
> ...



I think its time to close this thread as it going above and beyond.


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## Brendan Burgess (27 Sep 2011)

hasta may well be right.

At this stage, you need professional legal advice from a solicitor with all the paperwork before them and full knowledge of all the circumstances.


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## Bronte (7 Oct 2011)

ripdot said:


> So. What I'm taking from the above - they're likely to kiss goodbye to pub, but might be able to continue living in their home, just with a judgment mortgage registered on it? It is far from a mansion, and isn't in a good location, I doubt any bank would see any point in selling in out from under them in the current climate.


 
You don't really think the bank who is apparently owed substantial amounts is going to let them stay in the home?  Why would the bank do that?  What advantage would it be to the borrowers to stay there?


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