Posted on 20th Nov 2015 14:36:51 in Personal Guarantee Insurance
How to challenge a demand on your PG
When a director is seeking to borrow money, a lender will often insist that a personal guarantee is also given. No one likes to give a PG, but when the money is on offer, often we have little choice. It is only when things go wrong and the PG is called in that directors have to face the reality of the situation.
Fundamentals of the Personal Guarantee.
A guarantee must be in writing and signed by the guarantor or his agent if authorised. (see the Gordon Ramsey case for fun and games on this score)
Your lender must be a party but it does not have to be a signatory.
In most cases a guarantor will only be liable once the debtor is in default.
A guarantor will only be liable to the extent the company is liable.
The liability will exist from the time when the company is in default and the guarantor has been served with a demand
Challenging Personal Guarantees.
Check and see if material alterations have been made in the guarantee after signing. If so then they are void.
Further is any alteration is prejudicial to the guarantor then this renders the document unenforceable.
Has there been misrepresentation? If the lender or indeed the company has induced a guarantor to enter into the guarantee by a misrepresentation then the contract will be unenforceable.
Have all key facts been disclosed? Any non-disclosure of key facts could make the PG unenforceable.
Can you argue that as a guarantor you have been subject to undue influence? The individual circumstances of the guarantor and his position in the company will have to be examined.
What are your rights if you have to pay?
You are entitled to an indemnity against the company if it is still trading or against other joint guarantors
You can claim a right of subrogation against the bank, that means that you can take the rights the bank had.
As a guarantor you can take advantage of any defence the company had against the bank.
Finally if all that just seems too much hassle, you could always just insure your PG.