Directors are under a lot of pressure nowadays, those pressures ranging from dealing with employees’ pensions to drawing dividends to paying corporation tax to a myriad of other matters. However, one issue becoming more regular, in these economically uncertain times, are claims against directors enforcing guarantees they may have given.
A director’s guarantee, or personal guarantee, is a document which when signed by the director holds them personally liable for certain debts of the company. If a claim is made under the guarantee, the director must pay that company debt, and if this is not done, then they can be taken to court by the creditor and potentially made bankrupt.
It is fair to assume that a director will only give a guarantee when it is demanded by the creditor at a time when he/she may be under extreme pressure to sign that guarantee. Consequently, the director will be giving a guarantee at a time when he/she may be confused as to what is and is not being guaranteed and where there is an unfair bargaining position between the director and the creditor seeking the guarantee.
In this nightmare scenario, the answer is to focus on the 3 Cs:
1. Construction – Check the contractual construction of the guarantee.
There are many questions, the answers of which could frustrate the enforceability of the guarantee.
2. Complications – Check if the terms of the guarantee have been changed by subsequent correspondence between the director and the creditor.
3. Compromise – The creditor will be as hesitant as the director in going to court to enforce a guarantee.
If you are a director facing a claim against you under the terms of a guarantee, there is no need to panic. As you can see from the 3 Cs above, there are many reasons you could in fact not be held liable under the guarantee. For further advice on how deal with a claim under your guarantee, please contact Tony Sampson on 020 3319 3700 or [email protected].