Personal Guarantee, Divorce & RBS

[BaxterJ]

Hey folks,

 

I know the title sounds confusing but – I’ve been advised my only option is to go bankrupt, it is now my only option.

 

But my questions are (if you can help would be really appreciated)

 

A ‘Securitised’ Guarantee (to start a Ltd business) was granted by RBS secured on the marital property when I married my now ex-wife, (the house was hers before we got married, but she agreed to go guarantor). Laterally through the divorce mill she threatened to remove her guarantee under the T&C set out by RBS in a nasty I’m going to make you bankrupt e-mail (she claims to have bipolar disorder)

 

I warned RBS she was going to do this over the phone, they said don’t worry we are not going to let it happen. It did, RBS let it and my ex in effect resigned her obligations to the bank….nice when you consider it totally ruined my divorce battle as the whole basis for financial settlement was to give me a certain amount which paid of the security on the house, I remove the security and bingo we’re divorced….not so. As soon as I wanted to sign of on the minutes she backed out as it ‘didn’t suit her’, i digress, her actions made the then agreement null and void, as the guanrantee was the main jist of the agreement. Thus i had to accept a no blame divorce just to get rid of her. Luckily for me i still got my bike back...umm

 

Now the security is a personal guarantee for approx £28,500k. RBS have called it in – even though I told them they ruined my divorce by letting her do this and that no funds where on the table to assist any form of repayment options. Even though I did apply under the Enterprise Finance Scheme to restructure and reorganise my business affairs in a time of recession – but RBS said no….nice.

 

Crucially the debt was at the time built under a joint and several liability (the paper work proves it) as she went guarantor and my crucial question is this – I have to go bankrupt, I have no choice. It is my circumstance, I haven’t been well mentally (depression) and my motivation to keep going has all but disappeared. I’m now making coat hangers on the minimum wage in order to re-build my life. I used to be able to charge £7k p/week for my services, that’s how much damage has been done.

 

Based on this info – will the accountant in bankruptcy choose to pursue my ex-wife for the funds ‘promised’ under the guarantee (even tho she paid a corporate lawyer £0,000’s to get out of it), as the debt was built up during the marriage?.

 

I have correspondence from RBS indicating they cannot call on the business for the debt, just me.

 

I have personal debt built up which is now unmanageable due to my current employ.

 

Estimated total debt – between £50k & £60k

 

Apologies for the long winded explanations – it’s a lot to explain.

[Tawnyowl]

Hello Baxter J,Welcome to the CAG.Have you had proffessional advice saying to go Bankrupt.Your ex wife has Bipolar,a illness,that sure is difficult to live with.28,500 Business debt,whether joint liability or not still quite big.It seems 50Kto 60k debt that due to present job ,not manageable.Are the other creditors chasing you.Are you making any payments through a debt plan etc.Just a few thoughts,even if not any help to you will bump your thread and hopefully get further advice.

The limited company is a separate legal entity in its own right, just like a person; as such the Company entity can incur debts and be held liable for them up to the value of the company.

The Directors of a Limited Company are employees of the company but can commit the company to various contracts and agreements. With a limited company the shareholders (usually the directors) own the business although you can be a director in name only and not own shares.

Suppliers and lenders are aware that if the company fails they may have no recourse to recover their money and so they sometimes insist on a company director signing one of the most dangerous documents in the business world – The Personal Guarantee (or PG for short)! The other most dangerous document on earth is the Bond and Floating Charge (B&FC), much loved by banks and other financial institutions.

The PG: By signing a PG you effectively LOSE the protection of limited liability and become PERSONALLY LIABLE for the Company debt.

This is (very / obviously) bad news as not only do you lose your job if the company fails you then have to try and repay all the debts that you signed a PG for. Avoid PG’s like the plague. It may not be easy at first but as you establish a track record make sure that you renegotiate ANY contract where you signed a PG (otherwise what was the point of setting up a Limited Company?)

The B&FC: Sometimes a lender needs or wants security from you and wants to take a charge over your business assets when it gives you say a business loan. If they used a “standard security”, then you could not buy and sell assets, stock etc as it would be secured to the lender and not yours to sell until the security was removed, hardly practical on a day to day basis. A B&FC allows you to buy and sell in the normal course of business but when the B&FC is called up by the lender it then takes effect ( crystallizes ). At that point whatever assets are on the premises or specified in the agreement are secured by the lender. B&FC’s sometimes extend to your HOME so be careful.

Unlike personal debts, action against businesses can happen much quicker as the pursuer or creditor will probably know you by name not a number! For that reason it is important to have a strategy in place either before you set up in business or as soon as you realize that a problem is coming your way.

It is important to remember that if you continue to trade, KNOWING that the Company is insolvent you could find yourself PERSONALLY LIABLE for the debts! .

I dont know 100% if your ex wife will be chased for any money.But one things for sure,once you fill the bankruptcy petition in ,you can bet the OR will find out .As you are now on the minimum wage,and needing some business advice have you tried any helplines,say,cab ,cccs,payplan or maybe here-- http://www.communitylegaladvice.org.uk/en/directory/directorysearch.jsp

Probably not the advice you wanted but bumping your thread best wishes Tawnyowl.

Edited August 16, 2009 by tawnyowl

[BaxterJ]

Thanks Tawnyowl...

 

It's got to the stage after discussing with 2 insolvency practioners, CAB and CCCS that bankrupcty is now my only option. I've waivered and waivered and tried to find out as much as i can before having to make this decision, but i have a failing business on my hands mixed in with depression and low self esteem as a result of the past 2 years (my dad also had cancer for the 2nd time)

 

The advice given tawnyowl is excellent, if only they taught that kind of stuff at Uni/College then perhaps the world would be a better place.

 

My primary cause for coming on here is to voice a sense of feeling in regards to what other people know or have experienced with issue of Personal Guarantee, as at the time of the business working, ie, it being a joint and several liability supported by her via a security on the house - will the OR go knocking on her door?, cruel as it may sound i would hope they do, becasue she threatened me (disguised as 'explaining my options') to make me bankrupt and she acted on it in malice - in effect to do me some very serious harm as she simply didnt like the fact she was responsible for the destruction of our marriage and wanted to take it out on me.

 

I wish no harm, but becasue she acted in the way she did with the security and RBS, she may have in effect shot herself in the foot?. What she should have done was settle the agreement and stuck to it, rightly or wrongly i feel she has planned every step of the way to not have to pay out in divorce to save her own ass and she found a way....but will it backfire on her surely?, as it may not be me chasing settlement anymore but the accountant in bankruptcy, as one thing is for sure - she may have kicked me when i'm down, but the AinB sure as hell wont tolerate the agrguments about who is liable or not and that she is no longer responsible. Fact is a portion of the debt (£20k) was built up under the agreement before she 'resigned' her obligations. Does that not make her in part liable?

 

[Tawnyowl]

Sorry to hear about your depression, and also your dads cancer. Sometimes things seem to arrive all at the same time, you pick yourself up slightly only to be kicked down again. Things change in time and you have allready started the process by deciding to go bankrupt. Ups and downs there will still be but you will come through it all, i am sure. The debts you have,and the bitterness you seem to be feeling will be sorted out once you have begun the process. The OR will find, if liable for any of the debt, your exwife. And probably will write and ask for details from her. I dont know exactly the procedure but imagine if half the debt is your ex wifes, or part of it there will be no escape from being held liable for it. If not you will be writing it off anyway. I hope you soon find out. Is there much equity in your ex house, perhaps if you have no liability on it anymore the creditors, if found that some or part of the debt is not yours, well where else would they go to collect . Only one place as i see it. As for your job at the moment, these are strange times. The other day i saw somebody, a person who has been in showbiz most of his life having to pick litter up for his job. Its all about survival, you are on a plateau at the moment, you will move up again.I will find more info on personal guarantees.Tawnyowl.

[Tawnyowl]

Hers someones experiance of Personal guarantees.

Example: Mr A was in business for himself and was already borrowing considerable sums from the bank on overdraft. The business was expanding fast and he did not have any more security to offer the bank. However, he requested more money from the bank to meet the expansion of the business. Mr A’s Father in law (Jack) wanted to help - so the bank sought a personal guarantee from Jack and also his wife (Judy) for a guarantee for 40k. The guarantees were provided for a solicitor to advise. Despite the advice, the personal guarantees were signed. The guarantees were also secured on Jack & Judy’s house as the bank had requested. The bank lent up to the limits of the overdraft agreement with Mr A and often beyond it.

Jack and Judy never worked for Mr A’s business; they had no control over the business borrowings and received nothing from the business at all. Shortly afterwards, Mr A left their daughter and a divorce coincided with the business demise. The bank sent formal demand to Jack & Judy for payment under their guarantee - which was for 40k plus interest plus costs.

Mr A had considerable debt and his unsecured creditors petitioned for his bankruptcy. There was a considerable sum left outstanding to the bank. As the bank had obtained guarantees with security it meant that Jack & Judy were facing a 40k plus debt to the bank after Mr A’s bankruptcy.

The bank requested payment but they got no response. As the bank didn’t ‘push’ for repayment Jack & Judy thought they’d just ‘gone away’. However, some ten years later Jack & Judy wanted to plan an anniversary party and an overseas holiday trip. They applied for a remortgage on their home to do this. This immediately prompted a demand from the bank for payment, which was then considerably more than 40k and secured under the bank’s mortgage for payment.

The bank was now less ‘friendly’ and having waited 10 years and having added interest for that period – now wanted the money owed on the guarantees or legal action would be taken to obtain full payment by possession proceedings.

Note: Bank loans, business loans, overdrafts and mortgages may be covered by personal guarantees or bank guarantees. The above is not an unusual scenario and many personal guarantees are provided to Banks or lenders too easily by partners, directors and spouses and also by other relatives, friends and even business acquaintances. Often, these guarantors have no input or any control whatsoever over the business itself or business borrowings or volume of business borrowings on which they have guaranteed payment. It can be a very costly error.

[BaxterJ]

That makes for some very intresting reading - one thing is for sure whenever i do get on my feet again i'll not be looking to anyone or any bank for funding, if it can't work, it shouldn't work. If i have to get it on tick - it simply ain't going to happen.

I will be making a formal complaint to RBS about how they let all this occur and how it ruined my chances of a divorce settlement and being in full facts of the situation about it to, whether i get anywhere is anybodies guess, but it'll be worth a punt i suppose.

I dont know what to think sometimes about how it all came about, i made mistakes becasue i was nieve in my thinking, brimming with confidence having got just married and trying to live a new life with me building a business for my 'family'...but as the saying goes the best laid plans of mice and men...

Personal Guarantee's - the devils spawn when it all goes wrong.

Tawnyowl - how come you know so much?, indeed it looks and sounds like you are a wise owl indeed!.

As for bankruptcy - i'm utterly frightened by it, as my father some 15 years ago went through it and it really tore him apart. But it could just be the closing of a 6 year chapter in my short life that ensures my future isn't in the hands of some nasty debt collector who cares nothing for what i've been through for the next 20 years.

The past 6 years has seen love happen, has seen fathers in prison for doing something exceptionally stupid, divorce, cancer and now financial ruin. In part i want to hang on as it does mean finality in my own mind as to my marriage, make no bones i loved my wife with every fibre of my being and would have given up everything for her, two years past since we split and still i find myself seeing a picture of us as i'm tidying up and i well up.

Perhaps it will ease when i have this over and done with, one can still live in hope of a better future.

Perhaps its just around the corner as i have a job interview on Tues - which would bring stability and confidence back into my life...fingers crossed eh?

[BaxterJ]

As for equity in the house - my family lawyer worked out that i would have been entitled to around £25k, so i should imagine when the OR see's the documentation it may just give them the opportunity to recover some of debt under that liability from her - given the full story to them i don't know if they will either care or just see an opportunity to get some money, i hope they will.

I would be most surprised as there can be no funds from me, as i'm utterly ruined and just surviving as it is, so surely it would make sense to chase a potential alternative despite her having gone to the effort of removing herself from the security after we split, as during the marriage the debt was built up under that security she went guanrantor for.

The equity she has in the house even inlcuding recession prices for houses is my estimate at least £100k - given those figures who do you think the OR will try and get money out of?!. I would hazard a guess but it sure aint going to being me..

Edited August 16, 2009 by BaxterJ
Additonal Info

[Tawnyowl]

Dont be frightened of bankruptcy. If this is right for you and you have had advice from CCCS and CAB who feel this is the right thing to do. Better to have tried and failed to not have tried at all. There is no shame in it. Many famous people went bankrupt and then went on again to success. Even Richard Branson was only a midge away at one time. Google (famous people who have gone bankrupt.) You will be surprised whose name you see. It may make you feel better. After two years separation i can understand about your feelings for your ex wife. Only time will tell what happens to you both.Time is a great healer. I understand Bipolar disorder and as i say it is hard to live with.You sound young so you will soon rise again like a phoenix.Good luck for your interview on tuesday,i will keep my fingers crossed for you.Keep posting any questions and news you have. Many will help you through this.Tawnyowl.

[BaxterJ]

Sage and timely advice, thank you - i will post what happens as time goes on. I know time is a healer, but sometimes hurt comes bouncing back when you least expect it, esp now.

Fingers crossed on the interview Tues - 10.30am

I'm 36 and live with my dog an english springer bitch whom i walk in the local hills alot...quiet life for the moment.....