Need Advice

[acf]

I need a legal advice from anyone of you. In 2004 a limited company secured a DTI loan (Small Firms Guarantee Loan) through one of the approved lenders on the penal of DTI as a start up capital for a francised business. At the same time, the company also bought the invoice factoring service from the same lending company and both of the directors of the company also signed personal gurantees for £15000 each on account of factoring debts. Both the directors had were committed to the business with promises of help from the franchisor. Therefore, at the time of signing of personal gaurantee agreement, there apparantly was no reason to suspect that the business would fail so the directors of the company render their personal guarantees. However, in March 2005, the business failed and one of the directors, sensing the likelihood of failure of the business, jumped out of the sinking ship and without informing the fellow director, resigned from the directorship of the company. The remaining director of the company was ultimately obliged to sell the company and the business to the prospective buyers along with all the liabilities of the company through a sale agreement. The change of the ownership of the company was informed to the factoring company over phone (unfortunately there is no written proof of that) and the gentleman spoken to indicated that as long as the factoring debts as on the date of sale of the business/company are recovered from the client of the company, the personal liabilities would be over. The Director of the company, being naive, believed him and did not ask for any written confirmation. Now after about six month, the factoring company has served the notice through their solicitor to the guarantors for payment of over seven grands each on account of invoice factoring (this is the grand total of the balance and they are asking for payment from both the guarantors separately). At the time of the sale of the company and the business, the outstanding balance was only over 900 quids.
The invoice factoring agreement stipulates various reasons for the termination of the agreement which include, inter alia, change in the ownership of the company. The guarantors believe that after the notification of such change to the factoring company (the Agreement provides that the same importance woud be given to the electronic messages/notifications as those non-electronic communications) the factoring company should have terminated the factoring agreement and the factoring company should have entered into a new agreement with the company and its new directors. The factoring company, however, failed to do so and even did not notify to the guarantors of any bad debts/non-recoverable invoices on account of factoring at any stage till September 2005 when for the first time they sent a legal notice (Letter of Demand). Having checked with the new directors, the gaurantors were told that the company had not used the factoring services since the purchase of the business so it is not clear as to how these debts were piled up like this.
Can anyone please advice:
1. Do the personal guarantors still have any liability towards the factoring company?
2. Do the new directors of the company have any liability in the matter?
3. What information is relevant to be asked from the factoring company to substantiate their cliam of over seven grand?
4. Is the factoring company acting fairly to ask for the same amount from both the guarantors separately (over 15 grands collectively)?

Any other advice/guidance would highly be appreciated. Any PM would also be much appreciated.

 

[gj]

Can anyone please advice:
1. Do the personal guarantors still have any liability towards the factoring company?

Yes I would say so - they should have extricated themselves from the guarantee when selling the business.

2. Do the new directors of the company have any liability in the matter?

Not personally unless they too signed any guarantee

3. What information is relevant to be asked from the factoring company to substantiate their cliam of over seven grand?

Statements of the factoring accounts

4. Is the factoring company acting fairly to ask for the same amount from both the guarantors separately (over 15 grands collectively)?

They will normally take action against all/both guarantors for the full amount, if the guarantee allows them to. This is beacuse each person gave the guarantee, and whilst it might be fair for each to pay only half, the factoring company may find one party does not have the means to pay so they will recover the whole amount from the one who can.

They cannot recover the amount owed, twice over though

 

[Ian J]

I'm sorry that I missed this thread when it was first posted but my answers wouldn't have been much different to gj anyway.

Has anything happened in the intervening few weeks as one of the interesting aspects to this is why the factoring company deemed it necessary to call on the personal guarantees in the first place.

The factor's first recourse will be to try and recover their investment in the debts from the debts themselves but if the customers are not paying it would be useful to know why.

In my experience - which is quite extensive - the factors tend not to be bloody minded for the sake of it and if the situation with the directorships is as you have indicated they may be persuaded not to pursue the two original directors

 

[acf]

Thank you very much Ian for your post.

The factoring company has started asking for the money out of blue moon without indicating the reasons as to why have they invoked the personal guarantee. The factoring company, through their solicitor and directly, was requested a number of times to provice the copies of the invoices which were the basis of these 'debts' which they have not provided as yet. They have also not indicated any reasons for not trying to collect these debts from the clients of the company, if any. The ball is now in the court of the factoring company and their solicitor.
Let's see how they move now.

Thanks once again for the advice.

Sajjad

 

[Ian J]

In my experience factoring companies only call upon personal guarantees if they feel that they are unlikely to recover their monies from the debts themselves and especially if they feel that there has been some wrongdoing on behalf of their client.

If the new directors are correct when they state that no invoices were factored after they took over it is possible that it is fees that the factoring company are claiming if the Agreement allows for a substantial Minimum Annual Fee.

In any event if you need any guidance please post here or send me a PM and I will do what I can to help.

 

[Admiral Collections]

Speak to Handson Group they are in the know or at least I have found them to be really helpful!

Nic :wink: