Limited company bank guarantee - unfair situation

[bristoltiger]

Hi Guys,

 

I'm writing this post ahead of making a formal complaint to the Financial Ombudsman just to see if I am justified and correct (morally if not legally!!!). I appreciate anyone taking the time to provide feedback.

 

Back in late 2006 I became a director of a Limited company. Upon joining, I became a signatory of the account. The bank manager said I would need to join the bank guarantee along with the other directors. I was happy to do this as I was taking joint responsibility. The company had a 15,000 overdraft facility.

 

In early 2007 I realised the business wasn't for me, although it was viable in my opinion (and that of an external accountancy) I wanted to pursue other matters. I sold my equity and resigned as a director on 30th May 2007. I spoke to the bank manager and told him of the situation and that I wanted to resign from the bank completely. I followed this up with an e-mail a few days later. He acknowledged the e-mail to me by means of a reply and said he would organise a new mandate - and that was that.

 

During the following 12 months I heard from various people that the new owners had made a mess of things and were winding up. I didn't think much of it as it was no longer my concern.

 

About 12 months (almost to the day), I get a letter from the bank - NatWest - calling in the guarantee and telling me I am still responsible for the 15k, along with a fellow director who resigned around the same time as me. I was a bit shocked and wrote back to say that I had resigned. They said I was still a guarantor. I wrote back and said that I had e-mailed our business manager. They did not confirm this either way, so I went on my own mission to prove the e-mail. Thankfully I have an e-mail archiving service at work and the e-mail has been found. It confirms my resignation and that I want to be removed from the account.

 

I wrote back to Natwest and included copies of the e-mail and they said that although I had resigned from the account, the new directors hadn't signed up to be guarantors and therefore I was still liable. This to me seems grossly unfair, given that I have had no involvement in the business for a year (during which they've run it to the ground), the fact that for me to become a signatory I had to become a guarantor (so why not for them?) and the fact that NatWest made no attempt to contact me during the 12 months to inform me of the situation, a reasonable request I would say? Furthermore they were happy to operate the account knowing the guarantors had resigned as directors and wanted nothing more to do with the business and did nothing to effect the change - which I feel is irresponsible and unreasonable for an institution like themselves.

 

I have now had my "final response" from NatWest that they intend to pursue me and my ex co-director for the 15k and my only other option is the Financial Ombudsman.

 

I cannot (morally) see how they can take this stance. Am I wrong?

 

Thanks in advance,

 

Tim

[SusanSusan]

I am no expert in these matters - but I have some experience with this sort of situation.

 

The first point is to disengage the word "moral" with "bank". This is not a criticism of them - rather just a statement of what a commercial organization is. That said, banks do not always pursue personal guarantees [PG], especially where they feel that the biz has failed in a genuine way and no one has tried to "do them over".

 

I had a PG with Barclays, and I owed them £80K when my biz went bust after 5 years. They never pursued me. They told me that as I had run my account well, and the biz had failed for genuine reasons, they would not pursue the debt. I also had NO assets (no house etc) and this may have helped.

 

There is some difference between a bank going through the automatic process of trying to collect, and the reality of what they will do at the end of the day. They may just try their luck to start with.

 

I would imagine, but am not sure, that the exchange of emails puts you in a strong position - unless there is some clause in the agreement/mandate you signed saying it can only be specifically canceled in writing by the bank etc. You should do some research and try and get some good legal advice - but note: lawyers don't always know the law in all matters, get someone who has experience in this area.

 

As they have admitted that you had "resigned" from the account (ie: they acknowledge that they received your email) then this should help. You are only discharged from your liability when they discharge you; the fact that THEIR condition for doing this is that another director signs up is irrelevant, and you will most likely not find such a clause (that you are discharged when this happens) in the agreement (but take a look).

 

The question would be: did you email; their reply; and their lack of further communication, constitute an acceptance of your wish to be discharged of your liability and their agreement to that?

 

You might consider going on the offensive - get a solicitor to write them a strong letter, quoting the emails etc and saying you will fight the matter all the way etc. You might request them to release a copy of all their info on their dealings with you under the Data Protection Act etc. Including internal emails and documents; recordings of phone calls etc. etc. This will put them to some work and show you are not going to roll-over.

 

At some point, if the bank really want to pursue it, they will have to hand the case over to their legal team, and they will take a different view on the matter to the folks who are dealing with it at the moment.

 

I always advise people to be very, very careful with PGs. You were/are most likely "jointly and severably" liable with your fellow directors. That means if they can't get the money from both of you they can go after ONE of you for the FULL amount.

 

In addition, I'm sad to say, just because you choose to sell your shares and resign as a director, that does not mean to say you can AUTOMATICALLY request that you be removed as a guarantor. Unless the agreement you signed says otherwise, once you are a guarantor, you are a guarantor. You can be a guarantor of a debt even if you own no shares etc.

 

The bank would have to agree to you no longer being a guarantor, and they would most likely only do this, once someone else signed-up to take the liability on. Even though you had sold you shares and written to them, they may well not be obliged to discharge your liability, unless they wanted to.

 

It's a tricky area, as the OTHER director(s) would have signed the bank agreement on the basis that you were all liable, and so I'm not sure that the bank can just decide to release one of you and not all of you. Again, you need professional advice.

 

I would read the agreement you signed very carefully, term by term. As you most likely signed it on the bank premises, there is a certain form the agreement must take; certain things they should have made clear to you; and certain procedures they should have gone through etc.

 

I would think that the email your received back from them is a big help. It may not be totally enforceable in court - but I would imagine that the Financial Ombudsman would feel that it was fair-play you took it to mean that you were discharged of the debt. Ombudsman tend to go with what is fair and reasonable, taking into account the banks are big and we are just small folk etc. The courts may be much harsher.

 

I would imagine that there is case-law in this area as well, and you should research that. And for what it's worth - £15K is small beer to a bank, especially when it's in a commercial context.

 

The moral of the story is always be very careful of PGs; ensure you have a get-out plan; and ensure that when you want to be released from the liability you ensure you really are.

 

In hindsight - and without be knowing too much details - the correct path would have been to have sold your shares on the condition that the bank released you from your liability and the buyer took it on. But I know that's not much help now!

Edited September 12, 2008 by SusanSusan
Added more info

[bristoltiger]

Thanks very much for your reply, very valuable info.

 

I have had a response from NatWest since I sent copies of the e-mail. They say that I was resigned from the account as a signatory, but not as a guarantor. This is because they were unable to get the new owners of the business to accept the guarantee, therefore I remained on.

 

I accept that this may be their terms, but why on earth did no one contact me ? They knew that I didn't want to be involved in the company or the guarantee. Had I known at some point in the 12+ months after I left the business I may have been able to resolve it in some way.

 

When I sold the business, the terms of the deal stated that the new owners would take over the liabilities including the overdraft. However, the chances of me being able to sue them now are very small.

 

I've had no choice but to go to the Ombudsman on this one, so I will let you know what they say after I provide all the details.

 

Very very unfair I feeel.

 

Tim

[SusanSusan]

I think their email may well put you in a good position. Technically, it may not have discharged you of your liability, but the Ombudsman may sway in your favor. Even the courts my look favorably on it - esp if the email say clearly that the WILL get the mandate signed.

 

And in any case, it would be the bank who would take you to court - and they may not do that. You might hit them with a SAR under the DPA, to get all the internal emails/phone calls/letters they have about you. This could scare them off - and might reveal some useful info.

 

Good luck.

[bristoltiger]

Thanks Susan, I will look into an S.A.R. That sounds like a good move regardless.

 

Kind regards,

 

Tim

[palomino]

Have you looked at the details of the guarantee document to see what constitutes termination of the guarantee?

I would expect you would have to give them notice but what about automatic termination when you cease to be director? If things like this aren't in there you should have picked this up before you signed it. Hindsight is a wonderful thing.

[fedup1986]

Hi,

 

I am looking for advice on a bank guarantee matter. Thought you guys might be able to help.

 

I had a succesfull land development business up until the onslaught of the credit crunch. My problem is that my bank withdrew support half way through a deal. I was assembling a piece of ground that was badly contaminated, the first part of that assembly was the purchase of two small houses which I had to do prior to planning for 400k. I put 150k of my own money in and a Personal guarantee for 150k and my house was also supporting this worth 350k with a mortgage of 100k. At this point I can quite understand why the bank would require so much security due to the site not having planning with contamination and not being fully assembled.

 

I was refused planning for the site however it was apparent from the nature of the refusal that I would win the Planning Appeal, the bank removed my house from the equation and increased my PG (personal guarantee)on the basis that when I won the appeal the site value would be considerably higher in value once all pieces of the site had been assembled. This would therefore only require that the bank security could be taken over the new site and therefore assembled piece of ground from the remaining land owners. I subsequently won the appeal and was asked to value the entire site assembled with a view once a sufficient value was achieved that my PG would no longer be required and my facility extended. The site valued at 2million net of costs by the banks preffered valuers. With my OD for the bungolows and on going running development cost standing all totalling 530k with another 200k required to assemble the remaining site leaving equity of 1.3million pounds everything was looking great. In fact my bank manager and his superior said well done son great piece of business, a less than 50/50 Loan to value low risk for us. I therefore asked the bank to forward the remaining money we had verbally agreed to enable the assembly of the site and the unlocking of its value.

 

Unfortunately the bank called me in and said due to the current economic climate they would be forwarding no more money for the assembly of the site. I asked about my PG, to which they replied we were simply only lending me money for the bungolows, and if you cant pay your interest on the OD we may call in your personal guarantee. Needless to say I am disgusted at this blatant lie and their moving of the goal posts. For the bank to clearly try and pass off that they new nothing of my business activity and that they are in the habit of lending large amounts of money to people buying land without planning, and not in its entirety especially with no planning and on a heavily contaminated site beggars absolute belief.

 

I have over the last 6 months tried everything to keep servicing the loan at 3k per month hard going when you have a young family to support including personal and household debt expenses. I am know defaulting on the overdraft have become quite ill due to the stress. on top of that the business is being sued by my unsupportive creditors (my business is limited).

 

My PG is backed up by some flats that I bought to provide a pension when I retire. I tried to raise some money on the equity in the flats to pay the overdraft for a a couple of years until this crisis abated. They are not highly geared unfortunately the bank refused me the advance, I raised it with another lender and depostited the money in the business account 50k in total. The money was also to pay my creditors and for some wages. The straw that broke the proverbal camels back is that the bank swallowed the money on deposit and reduced my OD leaving me with no more ability to save the business or pay my creditors never mind my household expenses.

 

I know want to fight and show how unreasonable the bank is being to a very viable business with obvouis substantial assets. Who through no fault of their own but a bank moving the goal posts, know faces financial ruin.

 

I want to challenge the legality of the guarantee as it had been given in good faith and taken under false pretences. Can anyone point me in the right direction i.e past case law, personal experience withthe attitude of the courts in challenges of this type in realtion to guarantees obtained, especially in the current market sentiment towards banks. Your help would be much appreciated.

 

P.S if anyone has a probelm with a property matter I will offer my advice.

Edited December 12, 2008 by fedup1986

[SusanSusan]

Hi Fedup, sorry to see you are having troubles. You are not the only one I'm sure!

 

The problem is the banks are now desperately hoarding cash - as they themselves are in danger of not being able to pay their commitments, and go bust themselves. So they are pulling all the stops out.

 

When things are going well, the say all sorts of things and the happy bank loan "salespeople" will lend anything to anybody. But once the s**t hits the fan, these folks get the boot, and the lawyers/accountants come in. They are ONLY interested in the letter of the contracts they have with you, and will be RUTHLESS. Hence them taking the money you put in your account to pay off the OD - most likely something they have a technical right to do - ie: call in your OD at any time.

 

I guess you've learnt a hard lesson, and should have put the cash with a separate bank or in National Savings etc. Plus always get everything in writing!

 

Suing banks is a major undertaking. I would read every agreement you have with them line by line etc.

 

Damaging PR is always a better and cheaper route. I would consider:

 

Writing to your MP

Complaining to all the official bodies

Getting your local newspaper involved

Setting-up a website all about it

Naming names

Writing to the bodies that are bailing out the banks

Making a video and putting it on YouTube

 

etc.. etc..

 

Wishing you the best of luck under the circumstances.

[fedup1986]

Susan,

 

Totally agree with your stratedgy and I have contacted my MP last week. Subsequently had the bank manager on the phone flapping a bit. I hear what your saying about not putting the money in the bank however the bank gave assurances which I have in an email that they would not swallow the money once put in.

 

In relation to the circumstances surrounding the guarantee (PG), surely the courts are not stupid and will see the bigger picture. Its like saying give me 250k and we will do this, once its done we will do this, and you can take away your 250k because you have done what we agreed. Right we have know got your 250k and here OOPs we have a problem. Not to worry we will ruin your business call up your 250k because we have lied and are not going to do what we said. I feel that that amounts to fraud and in relation to their problems they are not mine, in that I have done everything I said I would in my part of the bargain struck. the very least they should be doing is releasing my PG and taking their medicine for their own misadventure.

 

Wee question can a layman challenge then without a solicitor in the higher courts if the PG is called.

[SusanSusan]

Well done FedUp. If I were you, I would throw EVERYTHING you can at them PR-wise ASAP to get them scarred. Plus everything else I outlined and more.

 

These things do not cost much money; nor too much time - and you benefit greatly.

 

They will have scores of folks like you on their books - and the ones that kick-up a fuss they will most likely relent with.

 

The problem maybe that their contract MAY be very tightly worded, and have clever clauses that EXCLUDE anything else they may every say or put to you in writing. Legal action must always be the very, very last resorts as it's very expensive and time-consuming.

 

But you could threaten them - as you could end-up claiming all the profit you hoped to make on the deal; plus costs; plus damages etc. This could be millions.

 

You can do a lot of legal stuff yourself - BEWARE - THE LAWYERS ARE JUST AS BAD AS THE BANKS AND OFTEN KNOW NOTHING AND JUST WANT TO TAKE YOUR MONEY AND SHAFT YOU AS WELL. They are all in it together: banks; lawyers; accountants; estate agents; government; MPs. DON'T TRUST ANY OF THEM.

[fedup1986]

Susan,

 

That is so true the so called experts. You are so right its a cartel of greed and deception. I think what you are saying is that I liquadate and ascertain my damages thats the route and in terms of litigation the stakes are raised. Due to their actions, and my subsequent loss of profits which have been substantial, including damage to my reputation, and health your line of thought certainly provides a fresh angle.

 

I will keep you posted of my new You Tube site. It will feature the chaining of my person to the outside of the banks head office main door in the centre of Glasgow. I will attach a slogan on to my naked torso (that will be enough for any bank to capitulate) Entreprenuers for Justice followed by Who will bail us out. There are somedays when I feel enough rage at the injustice to do just that. Listen Susan greatly appreciatte your sentiment.

 

P.s Susan I am Dyslexic sorry about the spelling in the last emails.

[SusanSusan]

Great idea about the chaining - make sure you call all the newspapers/TV stations etc before to get them to film it.

 

You might also consider making a formal complaint to the police - ie: fraud, taking money by deception etc. You might not get very far - but you can insist on them logging it and issuing a crime reference number etc. and possibly calling the bank etc.

 

Make sure you make your case SIMPLE for the media. Take the one major thing the bank have done wrong - sucking the new funds out of your account for example - and press that point. Give them some great sound bites.

 

You can also go to Companies House online and for £1 get the home address of the directors of the bank. Chain yourself to THEIR railings; and/or get a friend with a camcorder and follow them down the street asking them why they are defrauding you. Stick the "YouTube" logo on your mike.

 

Get a huge picture printed of your kids looking unhappy (blur their faces or put black strips across their eyes) and have that next to you when you demonstrate for the cameras. Mention the directors BY NAME. Have the main MD/Chairman's name on your kids poster and accuse him of nicking your kids Xmas presents.

 

Oh... I could go on for ages

 

Has your bank been bailed-out by the government? If so, the possibilities are endless!