Personal Guarantee - Anyone want to challenge my defence :)

[justwondering]

Ok this is going to be a long one so bare with me

 

In 2006 my sole trader business got so big I needed to change to Ltd, I spoke with my bank regarding changing over the account to Ltd which as they said was not a problem and they would handle everything, when we got closer to changing the following happened

 

Meeting with Bank Manager 2006

 

Bank manager said I would need to sign a debenture in order to still have the £20K overdraft facility that I had when I was sole trader

 

Shortly after they said I would also need to sign a guarantee, I didn't question this at first until we met when I enquired to what the guarantee was, the response was

 

"its just a formality really, its just you guarantee any short comings, although as you have provided a debenture it would never be called upon as the debenture guarantees we get paid first"

 

We discussed the historical level of the companies assets and both agreed it would never come in to play, however I didn't feel hugely comfortable and said I wasn't really prepared to sign the guarantee, to which their response was, it really is just a formality I can assure you with the level of assets the company has it wouldn't be called on, but the bank insist and to be honest if you don't sign they will remove the overdraft with immediate effect and request payment in full (the account I believe was overdrawn at that time)

 

I reluctantly signed as I had done a little research and discovered the debenture gave them a floating charge of the companies assets so confirmed what the bank manager had said, and also the company always had around £120K of assets. Also with the threat of immediate removal of the overdraft (which I believe was actually already in place) I really had no choice as the style of the company involved large projects and we could only survive with this short term facility.

 

Now fast forward to 2011 and the company is in trouble and had to stop trading, the bank was overdrawn by £16K. The IP (who I now know to not trust a word they say) said "Oh no we will realise the assets and negotiate with the bank to pay this off" that said as soon as I sign the company over to the liquidators everything changes.

 

After arguing over a year with the IP they inform that there was a legislation change in 2008 that meant that any one holding a fixed or floating charge (ie a debenture) comes second to the liquidators expenses, ie we will take all the money and there is nothing for anyone else.

 

Of course fast forward even more the bank have now demanded I personally repay the £16K

 

Now I have read a lot on these forums and done a lot of research and really need anyone who fancies playing the part of the claimant (ie the bank) to see if they can legally argue against my case, my case being

 

Economic Duress - Even though I indicated I didn't want to sign the guarantee the position the company was in meant I had no choice

 

Misrepresentation - This was going to by an argument however this is where the legal argument gets interesting. It wasn't misrepresented, what the bank told me and the subsequent findings at the time were legally correct, so had the company fell into liquidation in 2007 then at that time the debenture would stand and the bank would have been paid from the assets prior to the liquidators fees, however legislation changed and came into force in 2008 which meant the liquidator would be paid first and the debenture effectively became worthless, in turn this then shifts the element of risk on to me personally and where a contract is signed and then any part of the risk is shifted I understand it becomes unenforceable

 

The other argument that they could say is I signed a document that clearly states I should seek legal advice (which as with a lot of people i didn't) as

 

1. Even if a 1000 solicitors told me not to sign, what choice did I have, the bank was holding me and the company to ransom on the threat of closing the overdraft

 

2. Even if I had seeked legal advice they would have only confirmed the exact legal position at that time in 2006 which is that with a debenture in place the bank was guaranteed to be paid first and their floating charge be the security over the assets and in light of the size of the assets the company held there was very little risk in me signing

 

In a nut shell the situation would have been, had the company gone into liquidation in 2007 in exactly the same state it was in 2011 then the banks overdraft would have been paid in full, however as legislation changed the element of risk shifted considerably onto me and in turn goes against the terms of the contract as represented by the bank in 2006 and the facts to which I relied upon in entering that contract.

 

Now I also believe there is an additional argument, that the bank had a duty under good faith to inform me and anyone else for that matter that the liquidation process had shifted and the debenture's they were putting in place no longer held as much guarantee to the bank as their own bank managers were telling people

 

Oddly even in 2010 in a meeting with a bank manager, the position was reiterated where the bank manager (a new bank manager) said I noticed the debenture this is a "very shrewd move, as not many directors have this in place and this means that the bank is covered and we wouldn't ever come after you" that was his exact words!!

 

So please come on people, please argue against my case as I feel its quite solid but I need to be tested to see if I am being biased!!

[citizenB]

As this is a Legal issue, I will move you to that specific forum, you should receive more visitors there

[raydetinu]

suggest you get legal advise now;

You may have a case with the bank, but don't hold your breath.

A solicitor may be able to argue your case for you; due diligence etc., however if it goes to court and you lose, a double whammy I think!

 

 

I found this, it may help?

http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch25-36/Chapter%2036A/Part%205/Part%205.htm

[justwondering]

I found this, it may help

http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch25-36/Chapter%2036A/Part%205/Part%205.htm

 

I thanks for this, I have actually read that from start to finish the section which interested me was

 

36A.66 Reversal of Leyland Daf ruling by IA86 section 176ZA In March 2004 the House of Lords gave their judgment in the case of Re Leyland Daf Ltd, Buchler v Talbot [2004] UKHL 9;[2004] 2 A.C. 298;[2004] B.C.C 214 (known as the Leyland DAF case). The question raised by the case was whether the liquidation costs and expenses could be paid from the monies realised from the sale of assets secured by the floating charges. The judgment overruled existing case law governing the way in which liquidators dealing with companies whose assets were subject to a floating charge, could attempt to recover the payment of the liquidation expenses and pay the (liquidation) preferential creditors. It was held that the liquidator was not entitled to claim his/her expenses in priority to the rights of the holder of a floating charge, and that it was immaterial whether or not the charge had crystallised before the commencement of the liquidation.

The insertion of section 176ZA into the IA86 by the Companies Act 2006 (CA2006) section 1282, reverses the Leyland Daf ruling with effect from 6 April 2008. This section provides for the expenses of the liquidator to be paid in priority to the claims of the floating charge holder or debenture holder whose claim is secured by the floating charge, to the extent that the assets of the company available to general estate creditors are insufficient to pay those expenses (see also paragraph 36A.67).

 

At the time further investigation in exactly what a debenture was confirmed what the bank was saying, they have a debenture and so would have full control over the assets, hence why they stated "the guarantee would never be called in" and was more more of a formality

 

The legal argument here is that I entered into a contract/agreement to sign the guarantee based on this position and the representation from the bank, which was factually correct, however in 2008 the legislation changed which shifted the entire balance of risk from what I knew at the time of making the contract.

 

So the debate really is, if legislation changes the law, and you signed a contract relying upon representation of the law at that time, does the change in the law and ultimately a shift in risk provide a defense

[raydetinu]

That's why you need legal advise!

I am sure the Bank will defend and have an opposing view, or at least a view on the justification of there stance/view.

A solicitor could explore your position and see if your defence would hold up, but even if he does think you have a case, it will no doubt have to be tested in court and any outcome would be risky.

I can only think that your defence would be sue the bank for not advising of your changed position when the law changed and they had a duty of care and through due diligence warn you of your risk.

They no doubt would say, you should have looked after your own affairs and been aware of the changed position and risk. If they were charging for the debenture then I believe yes they should of told you, as it has turned out to be worthless; just like a lot things that the Banks sold to us.

So up to you to see how far you want to take it and be prepared to loose.

[justwondering]

Hi raydetinu

 

I do appreciate what your saying and ultimately I think I will need to go down the solicitor route, I suppose I am just speaking out loud in order to gauge anyones thoughts

 

You bring up an interesting point which is one I have thought about myself, was it up to me or the bank in order to notice the change in the law.

 

My feeling (trying not to be biased) is you need to take the average person in the street test, line up 1000 directors who signed a debenture prior to 2008 and would they all know the change in the law had an effect on that debenture. now take the view that a multi-billion international bank who issues these debenture would have been aware of the change in law as it effects them directly regarding their position in debenture security.

 

Now in normal terms we all receive letters and notices on a regular basis as and when terms or law changes, this is my point, the bank never provided any such information, regardless or what they may have thought or even didn't know what their managers were informing people, I feel they had a duty of good faith to provide details that outline these changes.

[raydetinu]

That's what I said you may have a point about due diligence and a duty of care on your bahalf, only a solicitor can advise if this is a valid point to pursue.

[steampowered]

I don't think you have a case for economic duress. In order to establish economic duress you must establish that the bank's threat was 'illegitimate'. In my mind, the threat to withdraw the overdraft was perfectly legitimate. It was your choice to move from being a sole trader to a limited company, so it was inevitable that the bank would require a personal guarantee. Otherwise anyone could take on debt and simply move the debt into a company to avoid ever paying it back. You can read the legal analysis here http://www.radcliffechambers.com/media/Misc_Articles/Key_Developments_in_Contract_Law_-_Economic_Duress_2013.pdf, page 8 onwards.

 

It seems to me that your real complaint is against the receivers. What were their costs in the end? If there wasn't 16k in the company then you would have been liable under the guarantee regardless of the floating charge.

[justwondering]

I take your point, however that kind of got all messy as the guarantee was represented as a "formality" and stated would not be called upon as the Debenture covered the bank, I can understand it if there was no debenture but thats my point, had the company gone in to liquidation in 2007 I wouldn't be having this conversation, the Bank was guaranteed (dependent on realised assets) to be paid, so the representation the bank made was correct and factual, but the law changed which shifts the elements of risk from the basis and representation I was relying upon when I entered the agreeement

 

Realised assets £40K, Receivers costs (ironically) £40K - Balance £0

[steampowered]

Gosh - 40k of costs to administer 40k of assets? Have you tried to challenge this at all?

[justwondering]

Yes for over a year, got no where, IP's are a law upon themselves and unregulated, they can do what they like! IN an initial meeting the IP stated very clearly they would realise the assets and negotiate with the bank as they held a mortgage over the assets, I sign the company over to IP, months later asked have you paid the banks overdraft off, reply - "no don't have too, as my charges come first"

 

And that kind of brings up another argument, the bank didn't attempt to do anything with it's security when they had many options to address it, they just didn't bother.

 

The really stupid part of all this, I don't have any assets or 2 pennies to rub together! so they can't get blood from a stone anyway!