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Joint And Several Personal Guarantees
Joint and Several Personal Guarantees can be the most difficult form of security of debt to deal with. It can become very emotive if a Limited Company struggles or fails.
We once asked a client why they went into a Joint and Several Personal Guarantee, with fellow Directors for a company that subsequently failed, and he said:
- ‘It’s what the Bank wanted/insisted on’,
- ‘In our minds the business couldn’t fail and so would never be called upon’, and
- ‘Talking about Joint and Several Guarantees at the outset is a bit like discussing divorce on a first date’.
When there is a call on Joint and Several Personal Guarantees it all becomes emotional and personal and is usually the first disconnect in what was a brilliant working relationship and most likely a friendship. Suddenly it’s very serious and then potentially families and others become involved, and then it can quickly become ‘dog eat dog.’
Below are two examples of our work where, in one instance the directors stuck steadfastly together and, another that saw an acrimonious break up.
Issues often arise where one of the guarantors is worth more than another and in these instances a solution will only be achieved if these are healthy realistic conversations, dependent on the approach by all the Joint and Several Guarantors.
From a creditor point of Joint and Several Guarantees, they are powerful, as they can apply pressure in different forms often applying a ‘divide and conquer’ approach, thus increasing the emotive pressure referred to above.
If you and any co-guarantors can stay ‘as one’, that is definitely a strength when looking to settle any calls on Joint and Several Personal Guarantees.
ADVICE
Every case is different but the basic way to attack is:
- Try not to be emotive. If there is a ‘fall out’ – keep focused,
- Be realistic and commercial be it fighting a case as one or when there is a major ‘fall out’, and
- It may be a cliché but FIGHT THE FIGHT. The creditor who called in the Joint and Several Guarantee needs to be the focus not one another.
Successes Achieved >>