Optimal legal steps to enforce a Personal Guarantee provided by a defaulting borrower?

[AlexSmith2]

I lent thousands of pounds to a UK business, a Limited Company, a few years ago in the form of a loan note (also known as mini-bond). To protect my investment, as well as a legal charge on the business, I got a Personal Guarantee from the Director. He has considerable assets, worth many millions of pounds (verified in writing from his accountancy firm).

The arrangement was I would receive monthly interest payments and get my full capital back after two years.

To cut a very long story short, the Director started defaulting on his payments over a year ago. I've chased him up, through every means possible, a thousand times, but he hasn't paid a penny in interest, nor has he returned my capital.

A couple of weeks ago the Company went into liquidation. This is due to the debts it has to multiple lenders. Having experienced these situations before, the liquidation/administration process is likely to drag on for years and I'm unlikely to get anything back.

Therefore, I wish to enforce the personal guarantee I have. However, I've never had to do that before. I've Googled phrases like "enforce personal guarantee" and various variations of that phrase, but the majority of webpages that appear in the search results guide borrowers on how to wriggle out of their personal guarantee liabilities. It's made me quite worried. I can't find anything much in terms of how to enforce a personal guarantee.

I imagine I could hire a legal firm, but my experience of lawyers hasn't been great in the past and don't want to pay them thousands of pounds at their hefty hourly rates if I can avoid it. However, if that is the only/best option, I'm willing to take the hit and would appreciate any recommendations of who I may contact.

The Insolvency Service told me I may be able serve a statutory demand myself, so I'm wondering if that's a route I should take. I'm not sure if that's the first formal step one should take (subsequent to sending formal demand letters, which I've done) towards enforcing a personal guarantee?

Also, I have grown to discover the Director in question is a very devious and slippery character and if I go it alone, I'm wondering if it'll put me in a weak position and much more likely to fail in my quest to get my money back?

Another option I've considered is a debt collection firm - or a law firm - that may be able to take my case on a 'no win no fee' basis. Do they take on cases like mine? If so, do you have any recommendations of firms please? Feel free to DM me if you're not allowed to make any suggestions publicly on these forums.

I'd very much welcome any guidance you may offer as I'm quite lost. The borrower has been making a fool of me for over a year and this long-standing situation is continuing to cause me infinite distress.

Thanks very much in advance.

 

[japancool]

Is it under £10,000?

 

[Gyumri]

The terms of the PG would need to be looked at and of course would need to be signed. A stat demand for a liquidated sum can be downloaded from the internet but the guarantor is likely to find an excuse to apply to set it aside which then rolls into another year before being heard.

In this type of case you could spend a few thousand with a solicitor on issuing a claim to obtain judgment on a summary basis after a few months.

Armed with a judgment you could then enforce the debt. A lot depends on how much you are chasing.

Mini bonds are potentially a very good investment and you've got security. The debtor is slippery but I would still write a seven day letter threatening legal action if he doesn't honour his guarantee.

 

[Gyumri]

Also you need to comply with the terms of the guarantee by for example first demanding payment if that is required before you can serve a stat demand.

You can also engage an insolvency barrister on a direct access basis to cut costs. See also this case regarding a PG:

Martin v MclAren Construction Ltd [2019] EWHC 2059 (Ch) (29 July 2019)

 

[Mark T Jones]

An insolvency barister? Yet more bizarre l'egal advice'.

@AlexSmith2 I fear you are going to need to throw some resources at this if the client is known to be slippery (many are when it comes to recovering PGs)

Before you do so I'd start the process by officially terminating the deal and putting the individual on notice that you are invoking the guarantee (their response or otherwise will be telling)

You might get away with a marginally cheaper option of using a professional recovery firm such as Thornbury Colle tion (used to be members here, might still be)

Before you commit resource, you need to establish whether the guarantor has UK assets worth pursuing.

 

[Gyumri]

An insolvency barister? Yet more bizarre l'egal advice'.

You might get away with a marginally cheaper option of using a professional recovery firm such as Thornbury Colle tion (used to be members here, might still be)

There is nothing bizarre about engaging an insolvency barrister on a direct access basis.

A professional recovery firm is going to have to follow the law like any other and the law is clear if you read the judgment posted which is written in plain English.

The best and quickest option for the OP after calling upon the guarantee and getting a raspberry blown in his face is to make a claim, provide a short witness statement, exhibit the PG, the notice/demand under it and any relevant correspondence and if there's no defence go for default judgment and if there is a defence then pay £255 for an application for summary judgment.

That can take a few months. Armed with a court order then instruct somebody like Court Enforcement Services Ltd to go round the debtor's house to collect the furniture. It usually does the trick.

If the judgment is obtained in the county court you can "transfer up" for £66 to instruct a high court enforcement officer to enforce rather than the court bailiff.

The reason why the stat demand route is not the best or quickest option is quite apart from the fact that the debtor will apply to set it aside, a court order for the judgment debt is proof of the debt and has more teeth. It can be enforced in different ways - charge on the debtor's home, 3rd party debt order etc and even sold to a "professional" debt recovery firm.

The courts are full of direct access barristers working directly for members of the public without solicitors and are not to be sneezed at.

 

[Gyumri]

He has considerable assets, worth many millions of pounds (verified in writing from his accountancy firm).

Before you commit resource, you need to establish whether the guarantor has UK assets worth pursuing.

I think that avenue has been explored by the OP already although the debtor's assets could be tied up in Rwanda or even Timbuctoo, which is the next stop on the line.

 

[kulture]

The problem @Gyumri is that yet again you are giving advice without qualification. You are making assumptions and giving advice and supplying links that MIGHT be relevant but might not.

Details matter. The first question being how much is outstanding. The second being how much has been paid back from the original amount and how was it paid back , from the company or from the individual? What assets does the person have? Is he based in the Uk.

Basic facts and essential details that would go on to establish the correct route

For example, if the outstanding debt is a few hundred pounds then it might be better to walk away. What options you choose may differ for a few thousand pound debt vs a hundred thousand debt. The link you supplied was for a debt in the millions. Whilst the law is likely unchanged regardless of the amount, how it can be enforced does change.

 

[Gyumri]

I lent thousands of pounds to a UK business, a Limited Company, a few years ago in the form of a loan note (also known as mini-bond).

For example, if the outstanding debt is a few hundred pounds then it might be better to walk away. What options you choose may differ for a few thousand pound debt vs a hundred thousand debt.

I've given the options based on what the OP has stated. There are only a limited number of routes open to recovering such a debt arising under a personal guarantee or otherwise.

Some views from the esteemed Mr Eliott Green might also be useful as the borrowing company has gone into liquidation but otherwise of course nobody has seen the terms of the PG and one doesn't know the full picture except that the OP has already made a formal demand under the PG for payment.

 

[Mark T Jones]

I've given the options based on what the OP has stated. There are only a limited number of routes open to recovering such a debt arising under a personal guarantee or otherwise.

Some views from the esteemed Mr Eliott Green might also be useful as the borrowing company has gone into liquidation but otherwise of course nobody has seen the terms of the PG and one doesn't know the full picture except that the OP has already made a formal demand under the PG for payment.

The OP clearly stated that they don't want to pay hefty legal fees. whether or not going legal will be necessary or appropriate depends on multiple factors, some of which wont yet be apparent.

My direct experience of this is 20 years ago I'm reluctant to give legal advice as it may well be out of date however it is an absolute fact that the first, minimal cost step is to ask the guarantor how they intend to pay. The response (or not) will often be revealing

 

[Gyumri]

I agree. If the debt is only for a couple of thousand it might be more trouble than it's worth to instruct a solicitor or barrister to issue a claim, although money claims online could also be used to do things cheaply.

We don't know the full picture but I've given a road map for the OP to consider.

 

[kulture]

You have not given a road map so much as a motorway toll map. A road map for debt is more like this

Options if you're owed money

Use a mediation service, send a statutory demand, go to court or make someone bankrupt if a person or business owes you money

www.gov.uk

 

[Gyumri]

That link is more like Spagetti Junction.
For example: "Anyone who’s owed money (the ‘creditor’) can make a statutory demand. You do not need a lawyer."

That might be so but it fails to say that stat demands should not be used if a debt can be disputed - and in the OP's case with a slippery guarantor that is likely to happen.

Rule 10.5 (5) of the Insolvency Rules 2016.

Furthermore, it's likely to involve the OP forking out a few thousand and that's before getting to the bankruptcy stage.

So I would stick to the road map I've suggested but it's the OP's decision.

You can only lead a horse to water...

 

[fisicx]

So I would stick to the road map I've suggested but it's the OP's decision.

That’s not a road map. have you ever followed that course of action in a UK court?

 

[kulture]

That link is more like Spagetti Junction.
For example: "Anyone who’s owed money (the ‘creditor’) can make a statutory demand. You do not need a lawyer."

That might be so but it fails to say that stat demands should not be used if a debt can be disputed - and in the OP's case with a slippery guarantor that is likely to happen.

Rule 10.5 (5) of the Insolvency Rules 2016.

Furthermore, it's likely to involve the OP forking out a few thousand and that's before getting to the bankruptcy stage.

So I would stick to the road map I've suggested but it's the OP's decision.

You can only lead a horse to water...

So you not only did not read the full link, you disagree with HM Government's advice. HM guidence suggests several options, gives prices for some, and the likely cost is in the tens or hundreds depending on the amount owed.

We can all pick holes in advice if we selectively quote and ignore the rest of the text. That said we have no further knowledge of what the full circumstances are in this case, no idea regarding how much is owed, and no idea of the residency of the creditor.

 

[Gyumri]

That’s not a road map. have you ever followed that course of action in a UK court?

I have only been involved with litigation and the law for the last nine years in the High Court, County Court, Business and Property Court (Insolvency List), non party costs applications and statutory demands, applications to set aside, The Family Court and the Court of Appeal, defamation actions and detailed costs assessments in the Senior Courts Costs Office, enforcement of costs orders.
I've given a road map for the OP but he doesn't have to follow it. If you have anything to contribute from your personal experience then let's hear it. That's what these forums are about.

 

[AlexSmith2]

Thank you every one for the invaluable advice and insights.

I appreciate that there may be differences of opinion, but each and every input is hugely welcome.

To answer the question posed above, the sum is much more than £10,000. It's a low six figure sum. Due to the amount owed, I can't go down the route that used to be called the Small Claims Court etc.

As for the other topic raised, the borrowers has houses in the UK as well as less tangible and realisable assets. The properties are worth considerably in excess of the sums he owes me.

I don't want to hang around any longer because I know he's got other creditors he owes far larger sums than me pursuing him who also have Personal Guarantees. In light of the recent liquidation killing off the likelihood of success of receiving funds from his company, I want to try to "get in there first" to receive proceeds from the sale of his assets, though I don't know if the law states he would have to share that equitably between his Personal Guarantee debenture creditors or not? I've been told by him that is the case with his liquidated company, where he has to pay all his creditors their fair shares and not prioritise anyone - but the likelihood is nobody will get anything.

A year of chasing him and being fed one lie after another has really taken its toll on my health and I just want to take the most effective route now, without him using further tactics to avoid giving me my money back. He's a very canny operator and, I recently discovered, has extensive experience in avoiding paying debts.

 

[Mark T Jones]

Thank you every one for the invaluable advice and insights.

I appreciate that there may be differences of opinion, but each and every input is hugely welcome.

To answer the question posed above, the sum is much more than £10,000. It's a low six figure sum. Due to the amount owed, I can't go down the route that used to be called the Small Claims Court etc.

As for the other topic raised, the borrowers has houses in the UK as well as less tangible and realisable assets. The properties are worth considerably in excess of the sums he owes me.

I don't want to hang around any longer because I know he's got other creditors he owes far larger sums than me pursuing him who also have Personal Guarantees. In light of the recent liquidation killing off the likelihood of success of receiving funds from his company, I want to try to "get in there first" to receive proceeds from the sale of his assets, though I don't know if the law states he would have to share that equitably between his Personal Guarantee debenture creditors or not? I've been told by him that is the case with his liquidated company, where he has to pay all his creditors their fair shares and not prioritise anyone - but the likelihood is nobody will get anything.

A year of chasing him and being fed one lie after another has really taken its toll on my health and I just want to take the most effective route now, without him using further tactics to avoid giving me my money back. He's a very canny operator and, I recently discovered, has extensive experience in avoiding paying debts.

Cutting to the chase - I'd dive in pronto and go for a charge (even if it's low priority) over a property

There are others on here who can give specific advice)

 

[AlexSmith2]

Also you need to comply with the terms of the guarantee by for example first demanding payment if that is required before you can serve a stat demand.

You can also engage an insolvency barrister on a direct access basis to cut costs. See also this case regarding a PG:

Martin v MclAren Construction Ltd [2019] EWHC 2059 (Ch) (29 July 2019)

Thank you.

As per my post, I have already done that. I issued a formal Letter Before Action a very long time ago. It was last year.

The borrower kept lying to me, promising time and again he'll pay me very soon - within two weeks - but I have realised it was all devious ploys to keep me hanging on.

 

[Michael Loveridge]

You have not given a road map so much as a motorway toll map. A road map for debt is more like this

Options if you're owed money

Use a mediation service, send a statutory demand, go to court or make someone bankrupt if a person or business owes you money

www.gov.uk

Although that link should have been useful it is, like so many Government web pages, full of rubbish advice.

For example it says "Mediation is when an impartial person - trained in dealing with difficult discussions between 2 opposing sides - acts like a referee in a dispute. There can be a fee for mediation but it is cheaper than hiring a solicitor and taking court action."

A mediator does not act like a referee, A referee can impose his judgment on the players and penalise them, but although I'm a fan of mediation in the right circumstances its biggest weakness is that the mediator has no power at all to make either party do anything.

Also, the advice "Anyone who’s owed money (the ‘creditor’) can make a statutory demand. You do not need a lawyer" is extremely dangerous. If someone issues a statutory demand that is unjustified the recipient can apply to the Court for an order setting it aside. If successful, the Court would almost invariably order the person that issued the statutory demand to pay the recipient's legal costs, typically several thousand quid.

 

[Michael Loveridge]

Cutting to the chase - I'd dive in pronto and go for a charge (even if it's low priority) over a property

There are others on here who can give specific advice)

Unfortunately, as it seem clear the debtor is determined to avoid paying. it seems exceptionally unlikely that he would voluntarily give a charge over his property.

 

[Gyumri]

Cutting to the chase - I'd dive in pronto and go for a charge (even if it's low priority) over a property

The OP can't get that until he gets a court judgment.

I issued a formal Letter Before Action a very long time ago. It was last year.

That may not be deemed as a demand required under the PG. Check the PG and ensure that you have made a demand in accordance with its terms.

It seems the best route is to make a claim to get a judgment on a summary basis or by default if no defence is served. An application for summary judgment costs £255.

As it's a simple case you could instruct an insolvency barrister on a direct access basis to keep costs down, otherwise you could end up paying at least £350 per hour to solicitors unless you negotiate a fixed fee or obtain litigation funding.

The court system is an industry in itself with big money changing hands like no other business.

 

[Mark T Jones]

Thank you every one for the invaluable advice and insights.

I appreciate that there may be differences of opinion, but each and every input is hugely welcome.

To answer the question posed above, the sum is much more than £10,000. It's a low six figure sum. Due to the amount owed, I can't go down the route that used to be called the Small Claims Court etc.

As for the other topic raised, the borrowers has houses in the UK as well as less tangible and realisable assets. The properties are worth considerably in excess of the sums he owes me.

I don't want to hang around any longer because I know he's got other creditors he owes far larger sums than me pursuing him who also have Personal Guarantees. In light of the recent liquidation killing off the likelihood of success of receiving funds from his company, I want to try to "get in there first" to receive proceeds from the sale of his assets, though I don't know if the law states he would have to share that equitably between his Personal Guarantee debenture creditors or not? I've been told by him that is the case with his liquidated company, where he has to pay all his creditors their fair shares and not prioritise anyone - but the likelihood is nobody will get anything.

A year of chasing him and being fed one lie after another has really taken its toll on my health and I just want to take the most effective route now, without him using further tactics to avoid giving me my money back. He's a very canny operator and, I recently discovered, has extensive experience in avoiding paying debts.

I think you have reached the stage where you really need to employ a specialist- my choice would be a colle tons specialist, who can also guide and support you through the legal process. (Being wise after the event, but speed really is of the essence in these situations)

I would very much put a financial limit on what you are prepared to pay, which will somewhat define the course of events.

First stop however, via and registry, find out what the score is on the properties they own: are they in his own name, are they hocked up etc. Apart from guiding on his means, it will also give an insight to how smart he is

 

[kulture]

I have to agree. Invest in proper professional advice. Because this is a public forum anyone can read and see what you’re up to and there is no qualification of those giving advice. Well-meaning advice from this forum may not be correct.

Further it sounds like you’re creditor knows every trick in the book. It is time to use a well-known firm of solicitors who know how to stop these gameplaying antics. It’s one of those cases where is best to pay for the best rather than go for a cheap alternative.

 

[Newchodge]

That can take a few months

Well, just over a month.

 

[Michael Loveridge]

Well, just over a month.

If you're referring to the suggestion by Gyumri to try and obtain summary judgment then "a few months" is correct. Firstly, you need to issue the claim and wait for it to be served on the Defendant. You then have to wait for his formal response. This can take a month by itself. You then have to make an application for summary judgment, and, depending on which court it's in you might easily be waiting 3 or 4 months for a hearing.

 

[Newchodge]

If you're referring to the suggestion by Gyumri to try and obtain summary judgment then "a few months" is correct. Firstly, you need to issue the claim and wait for it to be served on the Defendant. You then have to wait for his formal response. This can take a month by itself. You then have to make an application for summary judgment, and, depending on which court it's in you might easily be waiting 3 or 4 months for a hearing.

If he is going for summary judgment I have assumed that Gyumri meant there would be no defence lodged. If that is the case the summary judgment would be issued without a hearing. If there is a defence then summary judgment is not likely to be possible.

 

[Michael Loveridge]

If he is going for summary judgment I have assumed that Gyumri meant there would be no defence lodged. If that is the case the summary judgment would be issued without a hearing. If there is a defence then summary judgment is not likely to be possible.

You're confusing summary judgment with default judgment. Default judgment can be obtained where no defence is filed. Summary judgment can be obtained where a defence is filed but it has no realistic chance of succeeding at trial.

 

[Newchodge]

You're confusing summary judgment with default judgment. Default judgment can be obtained where no defence is filed. Summary judgment can be obtained where a defence is filed but it has no realistic chance of succeeding at trial.

Thanks, I was confusing the 2.

 

[Gyumri]

I want to try to "get in there first" to receive proceeds from the sale of his assets, though I don't know if the law states he would have to share that equitably between his Personal Guarantee debenture creditors or not?

It's first come first served at the present time, so you are right not to dilly dally. Although you say the debtor has assets and houses etc one needs to check who those houses belong to- an online search at the land registry for £3 will tell you.

Once your claim has been issued you might want to apply for a freezing injunction if there is a risk of the debtor dissipating his assets. He will also then have to provide a list of all his assets including bank accounts which will be frozen up to the value of your claim.

You will need to follow the relevant pre action protocol for monetary claims before issuing your claim.

There are many solicitors you can choose but I wouldn't be dazzled by big name firms. What you need to avoid is running up a bill of say £50,000 which can easily happen before you've even finished brushing your teeth.

 

[AlexSmith2]

Thanks everyone for the invaluable advice and guidance. Hugely appreciated.

I will take certainly take heed of the advice provided by several of you to be in control of the situation and not allow legal fees to run away from me.

While I will pursue this case, as debtors like this vile and devious borrower need to be held to account and made to pay their debts, I will be sure to try to keep a level head at every step.

 

[kulture]

Thanks everyone for the invaluable advice and guidance. Hugely appreciated.

I will take certainly take heed of the advice provided by several of you to be in control of the situation and not allow legal fees to run away from me.

While I will pursue this case, as debtors like this vile and devious borrower need to be held to account and made to pay their debts, I will be sure to try to keep a level head at every step.

This is business. There is no place for feelings nor "vile and devious... needs to be held to account". If you have a good chance of getting paid, go for it. Set a budget. Stick to it. If you start to spend too much and still have not increased your chances of getting paid, consider stopping wasting money.

 

[The Byre]

A year of chasing him and being fed one lie after another has really taken its toll on my health and I just want to take the most effective route now, without him using further tactics to avoid giving me my money back. He's a very canny operator and, I recently discovered, has extensive experience in avoiding paying debts.

This is a rather irritating thread to read. When someone owes you money, you only stand a chance of recovery if you get in quickly. That means acting immediately after the first instance of default. Anything less than that and you get to stand at the back of a very long queue of creditors, each being fobbed off with vacuous excuses while our defaulter places his assets out of reach.

On this one, I am with Pelonoius in his advice to his son Laertes - neither borrower nor lender be. (Probably he was afraid that Laertes was about to touch him for a fiver!)