Defending a county claim for a personal guarantee

[ukbusinessowne]

Hi,

My partner has had a county court claim filed against him for a business he was a Director of. He was not the Managing Director, but one of the Directors and left the business as he wasn't happy with how it was run. It subsequently went bust.

When a Director, he signed a personal guarantee on a loan the company took out. All of the loan amount was repaid, but the debt for some of the unpaid interest has been sold on to another company who have submitted the claim.

This all came out of the blue as he left the business a number of years ago and the agreement was signed 10 years ago.

Now, no solicitor was present when the agreement was signed and no legal advice sought, although it says on the document that legal advice should have been sought. The document says it was signed as a deed but for something to be a deed it needs to be signed in the presence of someone. It does say it was signed in the presence of another person, but wasn't actually signed in the presence of someone i.e. it was signed by the witness subsequently. Has anyone got any experience of proving a deed is not a deed as such because procedure wasn't followed and the witness wasn't actually present?

I understand if it is not a deed there is a 6 year time limit on the personal guarantee hence he would not need to pay.

Thanks

 

[ChrisCallaghan]

Defending personal guarantee claims can be a tricky minefield. To my understanding, for a PG to be valid, they must give the opportunity to speak to a solicitor before signing, and then it is up to guarantor if they wish to seek advice.

My go to recommendation to my clients is Mel Loades and his team at https://personalguarantee.co.uk/ if you'd like to seek advice.

 

[AndEde]

What is the amount of interest due?

 

[Mark T Jones]

The answer isn't as simple as you hope it will be

There will be a lot of devil in the detail - your husband needs dedicated advice.

 

[Paul Kelly ICHYB]

If it was signed in the presence of a witness, what difference would that make?

If anything, it shows that the person who signed it without a witness is in default (irrelevant now as the loan is repaid).

This is not an uncommon thing but does show how detailed being a director can be.

 

[ChrisCallaghan]

I understand if it is not a deed there is a 6 year time limit on the personal guarantee hence he would not need to pay.

When did the company go bust? That would be the date to consider if your partner wants to argue that the debt is unenforceable (aka Statute Barred), as that would likely be considered as the date the personal guarantee crystallised.

 

[ukbusinessowne]

Yes my partner realises he messed up, although this was some 10 years ago. Personally I'd have to have a gun to my head to sign a personal guarantee but everyone is different. He felt pressured at the time in to signing by the Managing Director, but in hindsight (such a wonderful thing) should not have signed it.

It is for less than 5k but still fairly significant to him.

He lost money already himself on this business so being pursued for this is a bit of a mare. With legal things, alot of the devil is in the detail as I understand it and for a deed to be a deed it needs to be signed in the presence of 2 witnesses. But it wasn't actually signed in the presence of 2 witnesses as they weren't present at the time. If it isn't a deed, then it is out of time. It does seem off to me that they can come up with this after almost 10 years and I'd wonder re the potential legal pitfalls of selling on debt if their own case was scrutinised.

Also I think with loans and personal guarantees, the procedure now is that you do have to get legal advice so I'm thinking if he emphasises that no legal advice was obtained and that the deed was not actually signed according to procedure to actually be a deed, it is null and void and the loan company didn't do their own due diligence. I'm wondering if he can use this defence . I'm not sure feeling pressured is a real defence although another option...

 

[Paul Kelly ICHYB]

. But it wasn't actually signed in the presence of 2 witnesses as they weren't present at the time

This would only be called into play by the lender if the business defaulted on the loan. What you are doing is declaring that the lendee possibly defrauded the lender by declaring it was witnessed, when it wasn't.

It is not the lenders fault legal advice was not sought, so it is unlikely that you can use that as defence.

When was the loan paid off and when did the business close?

 

[ukbusinessowne]

Thanks all. Thanks Paul, I see.

The business was wound up 8 years ago, but looking at companies house was only dissolved 2 years ago.

My partner resigned almost 10 years ago.

As far as I'm aware, the loan was paid until 4 years ago. But my partner wasn't even aware it was being pursued/that some of the interest wasn't paid as he was no longer involved in the business and hasn't been for a considerable period of time.

 

[ChrisCallaghan]

The business was wound up 7 years ago, but looking at companies house was only dissolved 2 years ago.

When you say wound up, was the company closed through any formal insolvency process prior to being dissolved, such as a voluntary or compulsory liquidation?

 

[ukbusinessowne]

Thanks Chris, it was a Ltd company and from what I can see on companies house, it was wound up by creditors voluntary liquidation whatever that means, and dissolved as a result of that.

 

[ChrisCallaghan]

What date did the company enter creditors voluntary liquidation? If this was over six years ago, and the bank have made no attempt to enforce the personal guarantee for the interest in that time, your partner could argue that they believe the debt to be Statute Barred.

I always find the following a useful summary on Statute Barred: https://www.stepchange.org/debt-info/can-i-write-off-debt/statute-barred-debt.aspx

 

[ukbusinessowne]

Thank you so much Chris, much appreciated, it looks like the business was wound up 8 years ago, but looking at companies house was only dissolved 2 years ago. The commencement date for the winding up was 6 years ago. But it wasn't actually fully dissolved until 2 years ago.

He doesn't know if they tried to pursue the loan as he hasn't been involved in any of this until receiving the court documents.

 

[ukbusinessowne]

I will read through the links, thank you Chris, it was a Funding Circle loan, I think banks don't pursue this sort of thing.

 

[Lisa Thomas]

The dissolution is not the same as the liquidation date. the dissolution date will be 2 months after the liquidator closed the case and got their release so there may still be an argument the debt was statute barred if it was liquidated 8 years ago.

It's unusual for a liquidation to be open for 6 years. Maybe it was a very interesting case with lots happening or the liquidator was very slow to close...

 

[ukbusinessowne]

Thank you, it all does seem a bit of a mare as I don't think my partner signed the agreement truly understanding what it was at the time. The title of the document is Personal Gurantee and it only mentions deed in the signatures section. They didn't get solicitors advice at the time. I truly don't think a lay person would understand that it would come back to haunt them a decade later (although I do think he should have researched it more as personally I wouldn't sign something like that without doing more research).

The debt was sold on by Funding Circle to Azzuro associates ltd. I've been doing a bit of reading about this and will check if they have been fully complaint with Financial Conduct Authority rules - as they have not previously made contact my partner (probably as they did not have the right address) and have gone straight to raising a county court claim form.

I think the lender has an obligation to treat people fairly and to only act on a personal guarantee if they have done all they can to get money from the company first, and that this responsibility is now with Azzurro associates ltd.

Does anyone have any idea how I can check if they have actually done this? What information we can request from Azzurro associates? As if they haven't fully carried out their own obligations I am not convinced they will be able to legitimately call in the personal guarantee. I'm not sure Azzurro associates would have adequate info on this either, but as the debt has been sold to them, I'm presuming it would be their responsibility to come up with the info.

 

[nelioneil]

Surely if there has been no acknowledgment of the debt within the last 6 years - this is statute barred?

 

[ChrisCallaghan]

Surely if there has been no acknowledgment of the debt within the last 6 years - this is statute barred?

That's the hope! It all depends on when the personal guarantee could be considered as crystallised. Personally I'd argue that the PG crystallised on the event of the company entering into liquidation, which according to OP was 8 years ago. However now that they have filed for CCJ, OPs partner will have to argue this as part of their defense.

If lost, statute barred goes out the window if a CCJ is awarded.

 

[JEREMY HAWKE]

Surely if there has been no acknowledgment of the debt within the last 6 years - this is statute barred?

I also agree with this statement. The status of the company at any point in time is irrelevant if there has been no payment with no contact between the two parties on this debt

 

[eteb3]

Surely if there has been no acknowledgment of the debt within the last 6 years - this is statute barred?

As long as the primary obligation is an ordinary contract debt. If for some reason the debt arises from a deed (eg, a debenture) time on the primary debt will run for 12 years

It all depends on when the personal guarantee could be considered as crystallised. Personally I'd argue that the PG crystallised on the event of the company entering into liquidation, which according to OP was 8 years ago.

It also depends on the age of the debt when the guarantee crystallised, I think? If primary debt was time-barred at that point, then afaict there’s no longer a primary obligation and therefore nothing in the guarantee.

But if the primary debt was not time barred then the obligation to indemnify the lender for their loss arises at that point, and as the agreement to do so is an agreement by deed, time runs for 12 years from then?

Assuming it’s a see-to-it guarantee

 

[ukbusinessowne]

Thanks all. We will try to use these arguments, it is worth a shot.

 

[eteb3]

If primary debt was time-barred at [liquidation], then afaict there’s no longer a primary obligation and therefore nothing in the guarantee.

Interested to hear thoughts on this (more dismal) suggestion:

UK law time-bars only the creditor's remedy, and doesn't cancel the debt itself

So possibly there is no time bar on the primary debt if it's guaranteed, and the only time that runs is 12 years on secondary debts under the guarantee.

Those debts presumably arise only once the primary debt is definitively unpaid, ie, on liquidation, per @Chris Callaghan's view. (Or even possibly at the end of six years, when they are no longer recoverable by the creditor?)

 

[Paul Kelly ICHYB]

Surely if there has been no acknowledgment of the debt within the last 6 years - this is statute barred?

What if one of the other directors acknowledged it? Not sure if I missed this, but was he sole guarantor?

 

[ukbusinessowne]

There was the managing director on the guarantee. I have no idea whether he acknowledged the debt as my partner no longer speaks to him and hasn't since he resigned as a Director. But certainly the Managing Director was involved in the business long after my partner left. Do you think it would make a difference if he had?

 

[fisicx]

Have you engaged a solicitor to investigate?

Everything will hinge on the actual PG and the dates when things happened.

Pay someone to untangle the whole mess and advise on liability.