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Challenging Personal Guarantees

April 24, 2012

Be very careful when giving a personal guarantee ensuring you know what you are agreeing to and the extent of your obligations. If you receive a demand on your guarantee take advice.

  • A guarantee must be in writing and signed by the guarantor or agent if authorised.
  • The bank or finance company must be a party although do not┬áhave to be a signatory.
  • Mostly a guarantor will only be liable once the debtor is in default.
  • The guarantor will only be liable to the extent the company is liable.
  • The court are willing if there are ambiguities in the agreement to find against the bank.
  • Liability will exist when the company is in default and you have been served with a demand

Challenging Personal Guarantees.

  • If there are material alterations in the guarantee after signature then they are void.
  • Any alteration prejudicial to the guarantor renders the document unenforceable.
  • Revocation. You will have to check the terms to see how this is done.
  • Misrepresentation. If the bank or the bank and company has induced you to enter into the guarantee by a misrepresentation then the contract will be unenforceable.
  • Non disclosure. Any unusual features must be brought to the guarantors attention.
  • Undue influence.┬áThe individual circumstance of the guarantor and his position in the company will have to be examined.

What are your rights?

  • An indemnity against the company if it is still trading or against other joint guarantors
  • A right of subrogation against the bank, ie assuming the rights the bank had.
  • A guarantor is able to take advantage of any defence the company had against the bank.
  • It is important that you take professional advice on the guarantee.
  • If advice is given by the bank or a broker then ensure you keep a note of the advice or confirm the advice in writing.
  • Ensure if you give a guarantee that you have influence in the companies affairs

For advice on a personal guarantee call Carruthers law today or fill in one of our enquiry forms.