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Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

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Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508168

Postby Investor » June 18th, 2022, 8:09 pm

I lent thousands of pounds to a UK business, a Limited Company, a few years ago in the form of a loan note (also known as mini-bond). To protect my investment, as well as a legal charge on the business, I got a Personal Guarantee from the Director. He has considerable assets, worth many millions of pounds (verified in writing from his accountancy firm).

The arrangement was I would receive monthly interest payments and get my full capital back after two years.

To cut a very long story short, the Director started defaulting on his payments over a year ago. I've chased him up, through every means possible, a thousand times, but he hasn't paid a penny in interest, nor has he returned my capital.

A couple of weeks ago the Company went into liquidation. This is due to the debts it has to multiple lenders. Having experienced these situations before, the liquidation/administration process is likely to drag on for years and I'm unlikely to get anything back.

Therefore, I wish to enforce the personal guarantee I have. However, I've never had to do that before. I've Googled phrases like "enforce personal guarantee" and various variations of that phrase, but the majority of webpages that appear in the search results guide borrowers on how to wriggle out of their personal guarantee liabilities. It's made me quite worried. I can't find anything much in terms of how to enforce a personal guarantee.

I imagine I could hire a legal firm, but my experience of lawyers hasn't been great in the past and don't want to pay them thousands of pounds at their hefty hourly rates if I can avoid it. However, if that is the only/best option, I'm willing to take the hit and would appreciate any recommendations of who I may contact.

The Insolvency Service told me I may be able serve a statutory demand myself and then take matters along that channel, so I'm wondering if that's a route I should take. I'm not sure if that's the first formal step one should take (subsequent to sending formal demand letters, which I've done) towards enforcing a personal guarantee?

Also, I have grown to discover the Director in question is a very devious and slippery character and if I go it alone, I'm wondering if it'll put me in a weak position and much more likely to fail in my quest to get my money back?

Another option I've considered is a debt collection firm - or a law firm - that may be able to take my case on a 'no win no fee' basis. Do they take on cases like mine? If so, do you have any recommendations of firms please? Feel free to DM me if you're not allowed to make any suggestions publicly on these forums.

I'd very much welcome any guidance you may offer as I'm quite lost. The borrower has been making a fool of me for over a year and this long-standing situation is continuing to cause me infinite distress.

Thanks very much in advance.

GrahamPlatt
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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508175

Postby GrahamPlatt » June 18th, 2022, 8:31 pm

Ah. Sorry to hear that. I can’t help. But I immediately wondered why someone worth millions would need a business loan - or rather, I think perhaps that’s why he’s worth millions. The only potentially useful idea I have is in trying social media to find people (which there most certainly will be) in a similar position, and going after him jointly. Or try the Press (investigative journalists).

Dod101
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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508179

Postby Dod101 » June 18th, 2022, 9:11 pm

GrahamPlatt wrote:Ah. Sorry to hear that. I can’t help. But I immediately wondered why someone worth millions would need a business loan - or rather, I think perhaps that’s why he’s worth millions. The only potentially useful idea I have is in trying social media to find people (which there most certainly will be) in a similar position, and going after him jointly. Or try the Press (investigative journalists).


Another very obvious observation is why on earth would you lend him or his limited company money in the first place if he is worth millions? I cannot help you either but you might as well try to learn some lessons for the future to avoid a similar situation arising again

Dod

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508184

Postby BullDog » June 18th, 2022, 9:55 pm

Sadly I have a feeling this could end badly. My own experience is that all too often trappings of wealth are borrowed money or someone robbing Peter to pay Paul. Unfortunately my experience suggests the individual, if he has any wealth, it will be well hidden from view and probably untouchable from within the UK. Legally, he probably has nothing in the UK except debt. I would call these people who I know to be reputable and I think offer an initial phone call without charge or obligation. At least the OP might then be in a better position going forwards. Try -

https://www.safe-collections.com/

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508192

Postby Mike4 » June 18th, 2022, 10:38 pm

Never a great idea to take legal advice from a plumber but can you start by getting a CCJ against him then convert that into a charge on his house? Then at least you (or your estate) get your money if the house changes hands which it is bound to in the fullness of time.

My gut feeling however is the accountant's letter was false/forged and your guarantee is from a man of straw.

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508242

Postby uspaul666 » June 19th, 2022, 10:17 am

This is very familiar to me from my experiences with P2P lending. Firstly I’d suggest that until the administration and the liquidation of the company is done, you won’t be able to use the PG because, hey, there might be money in the company. secondly, unless the PG is backed in writing by particular assets and registered at companies house and/or land registry, it’s unlikely to work as expected. Thirdly, if is backed by their residential home, it won’t work if the spouse is living there because, that wouldn’t be fair on them. Like you saw when you searched for PG, there are companies and individuals who will have no qualms or hesitation in avoiding any and all attempts to collect on the guarantee and as such, a PG is best regarded as something to focus the mind of the director while the company is still solvent and trading because after that, they are worthless. Sorry,

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508436

Postby Investor » June 20th, 2022, 10:37 am

Thanks everyone for the advice. It is massively appreciated.

Yes, you're right, it has been a painful lesson and, after having suffered at the hands of this rogue borrower on top of other negative experiences with such smaller businesses, I will never trust anyone again in terms of lending or investing. My future investments will be into blue chip companies etc. where there is much more transparency.

Some of the personal assets at least do seem to be legitimate and I don't believe the accountancy firm's letter was faked or forged. There were three different people at the accountancy firm who were involved in getting the letter to me. However, other "assets" are in the form of not-easily-realisable collateral, such as undeveloped plots of land the borrower owns or investments of his own in other businesses.

However, he does own houses in the UK, so I'm hoping that will be the lowest hanging fruit. Even that will be a very complicated and drawn-out process because, as pointed out above, borrowers will find reasons to avoid having to sell e.g. making the point that their partner lives in the home and will otherwise be rendered homeless.

Aside from the 'lesson learning' about the mistake learned in making this loan in the first place, I'm still lost in terms of the actual steps to take, so would very much appreciate any guidance in terms of how to enforce a Personal Guarantee please?

Thank you.

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508441

Postby Mike4 » June 20th, 2022, 10:48 am

Investor wrote:
Aside from the 'lesson learning' about the mistake learned in making this loan in the first place, I'm still lost in terms of the actual steps to take, so would very much appreciate any guidance in terms of how to enforce a Personal Guarantee please?

Thank you.



I think you are over-complicating it. I think you just issue proceedings for the debt in the county court (or high court if the sum is large enough) using the PG as definitive evidence of the debt.

Get your CCJ then proceed as normal, attempting to collect using all the (broadly useless) tools available for enforcing a CCJ.

But as before, bear in mind IANAL.

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508454

Postby GrahamPlatt » June 20th, 2022, 12:13 pm

Mike4 wrote:
Investor wrote:
Aside from the 'lesson learning' about the mistake learned in making this loan in the first place, I'm still lost in terms of the actual steps to take, so would very much appreciate any guidance in terms of how to enforce a Personal Guarantee please?

Thank you.



I think you are over-complicating it. I think you just issue proceedings for the debt in the county court (or high court if the sum is large enough) using the PG as definitive evidence of the debt.

Get your CCJ then proceed as normal, attempting to collect using all the (broadly useless) tools available for enforcing a CCJ.

But as before, bear in mind IANAL.


ISTR ClitheroeKid saying something about which avenues to take, where using one route would get you bailiffs (who’re a bit hamstrung with rules & regs) and the other a more forceful agency … who’s name I can’t recall; Sheriffs officers?

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508455

Postby UncleEbenezer » June 20th, 2022, 12:23 pm

Mike4 wrote:My gut feeling however is the accountant's letter was false/forged and your guarantee is from a man of straw.

If an accountant gave a false representation, surely they could themselves be pursued? Not that it seems very likely: if the accountancy firm is for real then I'd expect you to find their letter full of caveats about things being taken in good faith on the investee's word but not independently verified.

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508559

Postby Kantwebefriends » June 20th, 2022, 11:35 pm

J. P. Morgan quotation:

The first thing [in credit] is character … before money or anything else. Money cannot buy it.… A man I do not trust could not get money from me on all the bonds in Christendom. I think that is the fundamental basis of business.

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508570

Postby Dod101 » June 21st, 2022, 6:50 am

Kantwebefriends wrote:J. P. Morgan quotation:

The first thing [in credit] is character … before money or anything else. Money cannot buy it.… A man I do not trust could not get money from me on all the bonds in Christendom. I think that is the fundamental basis of business.


That is absolutely correct. In company terms, I call that 'culture'.

Unfortunately it does not help the OP now.

Dod

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508600

Postby AsleepInYorkshire » June 21st, 2022, 9:03 am

Trying to help - but not well versed in this sort of area.

The term "mini bond" struck me as meaning some sort of "financial term" connected with lending. Generally speaking I get the impression they are at a higher end of risk.

https://www.foxwilliams.com/2015/01/29/ ... ers-guide/

What I can't quite understand is the personal guarantee connected to the OP's (Investor) bond. And I ask this as this may be a point at which some misrepresentation has occurred. In other words was the risk of the Bond [seemingly] reduced by the incentive of the personal guarantee, which inferred the risk was minimal? You can argue this point several ways, but I would suggest that a Mini Bond underwritten by a personal guarantee does seem to aimed at appeasement of the bond buyers perception of risk. It simply doesn't make great sense to offer a personal guarantee on a Mini Bond as it almost suggests that (apart from some illiquidity) the guarantor has no real capacity to raise funds through more mainstream lending options. Is it worth asking this of someone more skilled?

https://www.fca.org.uk/consumers/mini-bonds

As I've said I'm trying to help.

https://www.fca.org.uk/consumers/mini-bonds

Complaining about mini-bonds
If you received a service from an authorised firm in connection with your investment in a mini-bond – for example, you purchased your bonds through that firm or received investment advice – and you are unhappy with that service, you can complain to the authorised firm. Find out more about how to complain.

If you are not satisfied with the firm’s response, you may be able to complain to the Financial Ombudsman Service.


Investor, I'd like if I may please, to offer some additional thoughts. You are allowed to reflect on your decision to purchase this bond. But once you've had that chat with yourself I'd suggest you move forward. There's a fine line between reflection and, as I often do, seriously beating oneself up. I think you do need to speak to someone more versed in this arena and understand how this could or will develop and what potential opportunities you may have for recovery.

AiY(D)

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508608

Postby pje16 » June 21st, 2022, 9:14 am

AsleepInYorkshire wrote:Investor, I'd like if I may please, to offer some additional thoughts. You are allowed to reflect on your decision to purchase this bond. But once you've had that chat with yourself I'd suggest you move forward. There's a fine line between reflection and, as I often do, seriously beating oneself up. I think you do need to speak to someone more versed in this arena and understand how this could or will develop and what potential opportunities you may have for recovery.
AiY(D)

Great post
but no-one should beat themselves up
None of us are born knowing anything
and everything is easy when you know the answer
there is no such thing as silly question, if you don't know something you just are trying to better yourself

It's a nice sunny day :)

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508723

Postby Clitheroekid » June 21st, 2022, 9:24 pm

Mike4 wrote:I think you are over-complicating it. I think you just issue proceedings for the debt in the county court (or high court if the sum is large enough) using the PG as definitive evidence of the debt.

Get your CCJ then proceed as normal, attempting to collect using all the (broadly useless) tools available for enforcing a CCJ.

And unfortunately you are over-simplifying it. "Just issuing proceedings in the county court" is not as easy as it sounds - or rather it is, but it's extremely dangerous if you don't know what you're doing.

"Get your CCJ" is also by no means a given. It may be that the guarantor has a defence to the claim that we don't know about - for example the guarantee may only be triggered by a specific event that's not yet happened, or it may not have been executed correctly. Suing on guarantees is rarely straightforward.

You also need to know how to set the claim out in legal terms. The `Particulars of Claim' that have to be filed with the Court are subject to strict rules - https://www.justice.gov.uk/courts/proce ... part16#3.1 - and if you get it wrong the guarantor can apply to have the claim struck out.

If the claim is successfully defended or struck out then you will have to pay the guarantor's legal costs, and these can easily run into tens of thousands. You will also have your own legal costs to pay, which will be a similar - probably larger - sum.

As will be evident this is NOT a claim you should attempt to deal with yourself. If it's for less than £10k it would probably be dealt with in the Small Claims Court, so if you lost you wouldn't normally have to pay costs. However, if it's for more than £10k (which I assume it is) you need to hire a lawyer to make sure it's done properly.

But issuing a Court claim for a significant sum is expensive. I get the impression that we're looking at a six figure sum, and as the Court fee just to issue the claim is 5% of the sum claimed the fee on a £100k claim would be £5k. And that's before you get lawyers involved.

If (and it's a big if) the claim really is cast iron, so that the guarantor has no realistic defence then the best route is probably a Statutory Demand. This costs nothing (apart from a few hundred quid for lawyer's fees) to issue as it's not a formal Court process. If the guarantor fails to cough up within 21 days of receiving it he is deemed to be insolvent.

This entitles you to issue a Bankruptcy Petition. If he does indeed have millions in assets bankruptcy would be a disaster for him, and I've found that it's by far the quickest, cheapest and most effective debt collection tool.

However, you really must be sure that he has no defence. If he does he can (and will) apply to the Court to have the Statutory Demand set aside. If he succeeds you would normally be ordered to pay his legal costs, typically several thousand pounds.

So the bottom line is get proper legal advice and do not be tempted to DIY!

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508818

Postby terminal7 » June 22nd, 2022, 12:54 pm

Previous posters have given you legal advice - that I cannot do.

I have had two experiences in business of being owed material sums of money for services rendered. The advice to move on if faced with insurmountable obstacles is well given. One thing I would check out (which helped in one case) would be to check out through the usual databases whether the individual involved is a director of any other companies that are not insolvent. I would extend that search into wife and other close family members. If you are able to establish direct or indirect links to other businesses this does open up other avenues.

T7

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#508889

Postby Investor » June 22nd, 2022, 5:46 pm

Thank you everyone for the invaluable input. It is greatly appreciated.

A particular shout out to Clitheroekid for the very useful legal advice.

I don't think I can or should write off the debt, so, even though trying to get a debt paid is a tall order in this country, with obstacles at every turn, I will pursue it.

The Statutory Demand sounds like the most sensible option. It is not overly expensive or time-consuming, as Clitheroekid states.

The debtor is, of course, likely to try to have it set aside, but I need to start to turn the heat on him because my actions thusfar have proven to be ineffective.

Let's see what happens over the coming months. I'm not holding out for a resolution anytime soon.

Thanks again.

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#511258

Postby smilingpolitely » July 1st, 2022, 11:27 pm

Hi, if you haven't acted already, I second Clitheroekid's recommendation to seek legal help before serving a statutory demand.

Personal guarantees are a notoriously difficult area in personal bankruptcy. A statutory demand requires a debt for a "liquidated sum". An unliquidated claim for damages is not capable of forming part of a statutory demand, even if you are bound to win the claim. The courts have held that there are 4 categories of personal guarantee obligation, and only 2 of them give rise liquidated debts.

Given the cost of getting it wrong (thousands) and the threshold for setting aside a statutory demand (low), a few hundred pounds for a specialist would likely be well spent.

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Re: Which route most effective to enforce a Personal Guarantee provided by a defaulting borrower?

#511353

Postby GoSeigen » July 2nd, 2022, 1:35 pm

Investor wrote:The debtor is, of course, likely to try to have it set aside, but I need to start to turn the heat on him because my actions thusfar have proven to be ineffective.


This is worrying because it looks like you haven't read CK's post thoroughly. He recommended NOT taking the statutory declaration route if there is any defence: "you really must be sure that he has no defence"; I don't see why you'd expect him to try to have it set aside if he didn't have a defence of some sort.

CK warned that if the other party did have a defence and had the statutory declaration set aside you would be several thousand more pounds out of pocket and no closer to your goal and, I would guess, also at a psychological disadvantage having lost the first battle and a lot of extra cash.


GS


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