Guarantees and indemnities
Anyone who has been in business for a while, whether or not they have become incorporated, will be familiar with the concept of limited liability.
Limited companies have their own separate legal personality, distinct from the people who appear to be in charge of the business. Often, this is a source of frustration to creditors who may have been generous with their terms of payment and then find out to their cost what is meant by the difficulty of trying to pierce the corporate veil.
There may be circumstances in which aspects of insolvency law comes to a creditor’s rescue in these situations but by far the most powerful weapon in the armoury will be an enforceable guarantee or indemnity. These arrangements will give a creditor the right to pursue payment from individuals, often directors or shareholders of a company which becomes insolvent and unable to pay its debts.
Actions against a surety can be very straightforward, particularly if the documentation has been well laid. In contrast, claims can run in to trouble, either because of poor paperwork or technical arguments about scope, duration, capacity in which the document was signed etc.
We have long experience of dealing with this often complex area of commercial law, from every direction. Primarily we advise and represent businesses pursuing recovery of debts from individuals who have guaranteed or indemnified the liabilities of companies that have gone in to liquidation, receivership or administration.
We are familiar with the arguments and we also advise individuals faced with such claims, typically from banks who will routinely insist on these collateral arrangements as a condition of extending borrowing facilities to a limited company.
Sometimes these cases may also have an element of undue influence where the spouse of the company owner may have been required to give a personal guarantee and support it with a legal charge, or mortgage, over the family home.
Being familiar with the arguments that arise after a dispute has developed, we are well able to perform the preparatory and preventative work. We have experience of drafting guarantees, in short and long form, as well as advising business owners and other individuals who find themselves in the position of having to negotiate and enter into such obligations.
Whether you are lending or borrowing, these documents and deals can be game-changers one way or the other. Talk to us now about whether you should be using – or signing – one.
Email now or telephone 01460 200450.