4th August 2015
Now I have your attention, I must stress that this is not representative of the sort of results we frequently get – I find it an interesting case study as it does highlight some interesting points in relation to personal guarantees (PGs) issued by the banks.
Generally speaking, banks have been issuing personal guarantees for a very long time now and they are usually pretty ironclad. Historically, arguments like “I didn’t get a chance to have Independent Legal Advice (ILA)” used to hold water, but these days most judges will rule that as a company director, your duty of care is to the company and so you should know what you are signing – caveat emptor!
What most people do not realise is that it is common banking practice to keep PGs on file, even after the debts have been repaid and the accounts closed. As a result, supporting documentation with bank PGs is highly important – to illustrate this point, having a charge over your home is not conclusive evidence that a mortgage exists.
In this particular case, the clients approached us with a £300k PG from one of the banks and engaged our services to negotiate a full and final settlement. Once we were engaged, further PGs were produced bringing the total to £1.8m. Once our authority was acknowledged by the bank, we requested copies of the PG documentation (to double check they have been drafted correctly) as well as the relevant facility letters and bank statements as proof of debt (there could have been a clerical error whereby a debt that was originally unsecured was being pursued under the PG – admittedly, this is highly unusual, but it nevertheless remains part of our due diligence process).
As anticipated, the PG documentation appeared to be in order and the relevant protocols appeared to have largely been followed in the execution (there were however some points of concern which meant that a challenge could be mounted on the validity of the PG in relation to one of the parties, but we felt that this alone would not be enough to set aside the bank’s claim – rather it could be used as leverage to negotiate a better deal for the clients). The problem was with the supporting documentation – after piecing together the facility letters, bank statements and PGs, it was not possible to reconcile the banks’ claim. The facility letters referred to PGs that were not provided/possibly didn’t exist. On this basis, we determined that should the bank attempt litigation, they could not adequately prove that a liability exists for our clients.
Given that there are no guarantees when it comes to litigation, we took the view that a full and final settlement “without acknowledgement of any liability on the part of our clients” would be in our clients’ best interest so that we could expedite a swift resolution. After lengthy negotiation with the bank stating our position, the bank conceded to our argument and agreed on a settlement of £20k.
Again, I must stress that this is not representative of the sort of results we frequently get. Every case is different and you would need to carefully analyse the financial etc in order to make a proper determination/recommendation. If in doubt, seek advice.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.