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directors guarantee

directors guarantee

Postby jantra » Tue Apr 17, 2018 1:05 pm

About 2 years ago I gave a directors guarantee for a company and since then I've left the company and have no further part in its management. I informed the bank at the time.

Since then, the company has renewed its overdraft with the bank and the bank used the old guarantee despite knowing I was not involved in the management.

The company has opened up a new bank account (without having a board meeting to agree to it) and all funds are being diverted into this new account. The old account is up to its overdraft limit and the bank are looking at their guarantee. They are first asking the company to pay and then they intend to ask me to honour the guarantee.

I'm aware of s52 indemnity in the articles, but is the guarantee likely to be enforceable given the bank knew for around 8 months before they renewed the overdraft?

I know I need legal advice, which I intend to take
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Re: directors guarantee

Postby atticus » Tue Apr 17, 2018 1:28 pm

Oh dear. And how long have you been hanging round these parts, jantra?

You should have had the guarantee released when you ceased to be a director.

You are and remain liable under the terms of your guarantee.
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Re: directors guarantee

Postby theycantdothat » Tue Apr 17, 2018 3:17 pm

It all depends on the precise terms of the guarantee and whether the bank have done anything to void it. It is not that difficult to unintentionally void a guarantee.

The advice to anypone thinking of guaranteeing a company is not to unless you are the majority shareholder.
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Re: directors guarantee

Postby atticus » Tue Apr 17, 2018 3:25 pm

I hate to say this, tcdt, but bank guarantees are not unintentionally voided. The circumstances in which this can happen are so unlikely as to be unheard of. Banks' legal departments put in clauses that cover every possibility.

There are some things I would run through with a client in the OP's position, and unless the bank messed up in taking the guarantee at the outset, they may do little more than provide straws to clutch at to help with negotiation.

There may be avenues for the OP to explore in seeking contribution, including from the company, for what that may be worth.
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Re: directors guarantee

Postby dls » Tue Apr 17, 2018 6:50 pm

The basic law behind all this is that the document always missing is the agreement with the company' as to the terms. Nobody wants to pay for them.

There maybe an indemnity implied by the company, and its behaviour deemeda trigger of an indemnity to you. This is not, however, easy stuff, It can be heavyweight litigation with great uncertainty.

You need to find some way in which the bank allowed a change of position without you being notified (redirection of receipts?).

As Atti says, guarantees are drafted for security.
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Re: directors guarantee

Postby atticus » Tue Apr 17, 2018 9:50 pm

A guarantor always has the right to seek repayment from the principal debtor - although bank guarantees tend to curtail that right if the debt has not been cleared in full (eg where guarantee is for a sum less than the full debt).
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Re: directors guarantee

Postby theycantdothat » Wed Apr 18, 2018 10:58 am

I am not suggesting that bank guarantees are not well-drafted and do not cover all the angles - though you can sometimes come a cropper if you over-egg the pudding and consumer protection legislation may come into play. Assuming the form of the guarantee appears sound, there are two things to look at if a guarantor is called on to pay under a guarantee. The first is to examine the circumstances in which the guarantee was obtained. Was the guarantor given proper advice or the opportunity to obtain it? Was the relationship of the guarantor to the principal investigated? Were any published guidelines followed? The second is to investigate whether the bank has done something which effectvely changes the nature of the guarantee or which prejudices the guarantor. Whilst agreeing that a bank is less likely to slip up than than the average BTL landlord, the possibiity cannot be ruled out and needs to be looked into by any lawyer giving advice.
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Re: directors guarantee

Postby atticus » Wed Apr 18, 2018 11:26 am

jantra has said that at the time of giving the guarantee he was a director of the company and involved in its management. His mistake was in not attempting to obtain the release of the guarantee when he ceased to have that role. It is not clear whether he remains a shareholder.

Is the company the one in respect of which he has brought proceedings under s994 Companies Act 2006? If so, there may be an additional ground of unfair prejudice to be developed.
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Re: directors guarantee

Postby jantra » Wed Apr 18, 2018 8:10 pm

atticus is very astute and is correct.

It's an ongoing saga and that case is now in court. It's useful to know the latest actions support my claim
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