Personal guarantees, no need to lose sleep
Situations and events in life can arise unexpectedly, and without forward planning. Despite the improvements in the economy, the legacy of the global financial crisis continues to have a negative impact on borrowers. Personal borrowers are seeking advice relating to enforcement, that’s a result of a change in their circumstances, or poor planning.
A recent success concluded with an £840,000 personal guarantee enforced by HSBC, settled for £180,000. Our clients' business was in the construction sector and owned by a husband and wife team. They experienced delays on a building project which led to the administration of the company, and enforcement of the joint and several personal guarantees.
A change in your circumstances could be a major one, for instance loss of employment or your company going into administration. An example of poor planning would be an insurmountable accumulation of self-assessment tax liabilities owed to HMRC.
Corporate borrowers have historically provided personal guarantees to retail banks for SME, Property Investment and Property Development loans. In the current climate there isn't such an intense focus on lenders having direct recourse to an individual, but some lenders do insist on it. One challenger bank expects 100% of all capital, interest and associated fees to be covered by a personal guarantee.
The creditors we work with on behalf of clients range from HMRC and retail banks, through to private corporate entities who are joint venture partners. In some cases having a counter party as a guarantor is beneficial, and in other cases it’s an added complication.
HMRC have been involved in some of our recent cases, one of which had lasted 10 years before our involvement brought it to a satisfactory close. In this case the liability related to long standing corporation tax liabilities, which led to the father being bankrupted. The son entered the fray seeking to release family assets, and we assisted the family with the negotiation and settlement of the liability, and also to raise new finance for the recovery of the land.
Retail bank enforcement is common, probably owing to the volume of loans they issued, as opposed to any one bank's strategy. The restructuring teams such as the Royal Bank of Scotland's Global Restructuring Group, and Lloyds Banking Group’s Business Support Unit have been more active than normal over the last few years, as they exit non-core and non-performing loans.
Joint ventures can lead to events of personal enforcement. If a partner is adding disproportionate financial value to a transaction, and the other party is contributing disproportionate knowledge, then personal guarantees can be used to ‘focus the mind’ of the less financially exposed partner. We have seen enforcement by parties of this nature in the Renewable Energy, Property Development and Technology sectors.
Our track record is proven in this space with case studies available on request.
Other recent successes include:
- Personal guarantee reduced from £2,000,000 to £0 with a retail bank, relating to an SME business in the licensed trade
- Unlocking 10 years of paralysis for a family where the father had been bankrupted by HMRC, and the son recovered family land assets
- Negotiating the release of 45 flats from a retail bank restructuring team where debt was written down from £6m to £2.5m
- Part of the settlement agreement was that the personal guarantee was not enforced
Regardless of the situation there is invariably an acceptable middle ground that can be found if emotion can be removed. We strongly advocate that we undertake all negotiations on behalf of clients on a consensual basis so we reach a solvent outcome.
When acting for clients who have Personal Guarantees, our role is to:
- On behalf of the borrower we lead the dialogue with the creditor
- Draft and structure a negotiating plan to help both the creditor and borrower
- Define a timeline with acceptable and unacceptable outcomes
- Raise finance to settle the balance of any liability if required
We have a number of people in the team who can assist with closing PG positions. Please contact:
Jamie Davidson - Managing Director - 07919 863 034 - Jamie@ConduitFinance.com