Case Study: How To Negotiate a Personal Guarantee
Case Study: High net worth individual with Personal Guarantee exposure of c£770,000 settled for £150,000. Too good to be true? Read on…
This blog features our client who had supported friends with a misplaced business venture by granting personal guarantees on:
1. Mortgage, from a specialist UK lender, on a property portfolio, and
2. Development finance for a site with finance coming from an Irish Bank.
The said friends left our client completely exposed by their failure to perform and their conduct. Furthermore, this culminated in two demands on the Personal Guarantees given by our client:
– On the mortgage, there was a shortfall, after some properties were repossessed unbeknown to our client. The balances due and covered by the Personal Guarantees amounted to c£270,000, and
– The failed development undertaken, which was subject to a Fixed Charge Receiver appointment, leaving a shortfall of c€580,000.
Neither of the directors involved were able to give personal guarantees as their assets did not amount to much. Their conduct was shameful and they just expected our client to meet the claims made by the creditors.
Our client was a man of high net worth after his successful business have been sold to a FTSE 100 company. This was more annoying for our client on a personal level rather than the monetary amounts involved, which he could have settled straight away.
He approached us first to secure advice and protection after a Statutory Demand was issued against him by the Irish Bank.
We at Bell and Company entered into negotiations with the 2 lenders and secured the following settlements for our client:
1. On the UK mortgage shortfall of £270,000, after reviewing the subject access file, we found weaknesses and anomalies in the personal guarantee documentation that our client had signed. As part of the Pre-action Protocols, the lenders sought various pieces of financial information which, he could not and was not willing to provide. After about 7 months we secured a settlement, on a full and final basis, of £65,000.
2. The case of the Irish Bank personal guarantee claim was quite technical, with a few ‘moving parts’.
A summary of how the case panned out:
- The Irish Bank demanded payment of €580,000 covered by the Personal Guarantee and issued a Statutory Demand,
- The loan was then sold to a Vulture Fund, in Dublin.
- On our instruction, with the support of our excellent legal team, we were able to get the Statutory Demand set aside,
- We were awarded costs and then approached the company that purchased the said loan,
- The client decided that because the Bank had been so aggressive in their stance, he would indeed now fight the case in Court if required.
- We advised the new owner of the loan that this was our client’s position,
- We were advised that the case would cost €100,000 in terms of legal costs.
- Our offer to the Vulture Fund was – we could provide that €100,000 as a full and final settlement in this matter, with no admission as to guilt, or give it to our legal team to take on the claim.
- The fund accepted this Full and Final settlement at €100,000/£85,000.
This case demonstrates that even individuals with high net worth can negotiate if there is a ‘position’ to attack. Part of our work at Bell & Company is to look for that ‘position’.
The case also indicates the depth of inquiry/due diligence we at Bell & Company undertake, particularly those involving Personal Guarantees. So this in turn gives the clients the best chance of achieving favourable settlements in this niche area of our work.