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.
Posted on 19th Nov 2015 14:26:50 in Personal Guarantee Insurance
Four ways you might be able to limit your PG exposure
OK, it might be a long shot, especially if you are newly started in business but “if you don’t ask you don’t get”. The lender is in the box seat, because he has the money and your business wants to borrow it. That really was in a way why we created PGI, to help out the guys and girls who had non choice but to give a PG. these tips may help nevertheless.
So here are four things to consider.
1. Can you share the pain and spread the risk. Are you one of a number of directors in the business? Is your bank asking for a £100,000 guarantee? If so and there are say four directors, why not agree but each insist that you will only be responsible for £25,000 each not the joint and several liability of £100,000.
2. Can you limit the time of your exposure. You may be taking out a ten year loan, but try to negotiate that the PG’s expire after 5 years, if you have met all the terms of the loan repayments to that point. Alternatively seek confirmation that once a certain percentage or value of the loan has been paid off the PG’s will lapse.
3. Limit the amount to guarantee. The easiest of the options to negotiate. If the business is borrowing £1,000,000, and the bank is taking security over assets worth £500,000. Then never agree to a PG that is more than the difference between the amount borrowed and the assets. He you might agree to PG’s worth £500,000. Using the two examples above can you limit your personal exposure further?
4. Never put it all on the line. Is it possible for you to exclude certain of your assets from the PG? If you own a matrimonial home, you would never ask your wife to sign a Pg or charge over the property, so could you even get it excluded from the range of assets that the PG could cover?
All this may be impossible to negotiate.
However, you can cut through all the above and simply insure your PG with us in 5 minutes.
Posted on 19th Nov 2015 14:08:01 in Personal Guarantee Insurance
- Explore other options you might have that would allow the business to borrow money without you being personally liable. Will the bank accept alternative security?
- When you give a personal guarantee the bank will often ask for a charge against your house to secure repayment. Think carefully whether you are prepared to put your family home at risk before agreeing to this.
- Take legal advice to ensure you fully understand the implications and consequences of giving a personal guarantee. Never just sign a personal guarantee.
- If you can avoid giving a guarantee, do so, because it can have severe implications for your personal finances (including bankruptcy) if the company can’t repay.
- Where your landlord is asking for a personal guarantee it is usually best to offer a rent deposit instead.
- A personal guarantee is usually a continuing security, which means that there is no termination date unless you are prepared to pay the bank the full outstanding balance of the loan.
- If you have to give a personal guarantee, cap your liability to an amount you can afford but always remember that interest and costs can be added to the fixed amount.
- Check whether you have already signed a personal guarantee with the bank as they are cumulative. This means that if you sign a guarantee with a limit (say of £10,000) and the bank asks you to sign a new guarantee (perhaps because the business needs to increase its loan) with an increased limit (say £20,000) then unless the bank expressly releases you from the first guarantee in writing, your liability will now be £30,000 not £20,000.
- If you have any personal savings with the bank these are in danger if the lender calls in the debt.
- Consider that if any co-directors have also given the bank a personal guarantee this does not mean that you repay the bank in equal proportions. The bank will go against the director who they believe has the most assets.
Posted on 16th Nov 2015 16:26:30 in Personal Guarantee Insurance
Twice already in the last 7 days, we have been able to help businesses deal with the issue of existing PG's giving in one case by a Partner and in the other by a Director, who were exiting the business.
Many of you will have advised businesses where a departing Director wants to get his PG released. It can be extremely tricky. Lenders are quite understandably reluctant to release any security previously taken without replacing it.
Solutions suggested range from finding a replacement PG or putting cash into a bond.
Neither is particularly palatable. However, we have been able to arrange insurance for in one case the departing Partner to cover his PG and in the other the Directors took out insurance to cover any potential liability under the PG's effectively providing a complete indemnity to the departing party.
Hence if you come across a situation in your business or when advising that might be sorted out this way, give me a call.