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Entrepreneurs – Never Sign Personal Guarantees without Legal Advice!

HousesEntrepreneurs are used to taking risks and many of them sign personal guarantees in order to raise the finance that their businesses need. However, one High Court ruling will stand as a cautionary tale for anyone considering putting their name to such a document without first taking legal advice.

The case concerned a canny property developer who had done extremely well until his fortunes were derailed by the 2007 financial crisis. Up to that point, a commercial lender had viewed him as a favoured customer and loaned in excess of £50 million to various companies which he controlled or in which he had an interest. He described his relationship with the lender as cosy.

He signed a number of personal guarantees for sums totalling £417,000 whilst times were good and, following the downturn, the lender called them in. The guarantees were stated to be irrevocable and unconditional. However, the developer claimed that he had been given oral assurances, including during a lunch appointment, by a senior employee of the lender that they would only be enforced in very restricted circumstances that had not occurred.

The Court found the developer’s arguments superficially attractive and rejected the lender’s plea that the employee concerned had lacked ostensible authority to give the assurances claimed. However, the Court noted that the developer’s case, which was flatly contradicted by the terms of the guarantees, had been left in tatters by his unsatisfactory oral evidence. Although the Court understood that he felt let down by the lender, judgment was entered against him for the full amount of the guarantees.



 
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