Negotiating with creditors - we can help when it gets personal

Business is risky. That is why entrepreneurs choose to do business in limited liability companies and limited liability partnerships. But when lending to family/SME companies financial institutions in particular usually insist on personal guarantees from the company’s owner managers. Also increasingly larger trade suppliers like builders merchants incorporate personal guarantees in their account opening forms often without drawing that to your attention.

They do this to get greater security over the private asset of the directors and to tie directors in so they don’t walk away when the going gets tough. Most guarantees are joint and several which means the creditor can make demand and seek repayment from any and all of the principal lender or the guarantors and they do not have to wait to see if the company can repay first. This is the worst of all worlds for the personal guarantor because he/she may have no control over how the company’s assets are realised or the order in which creditors are paid by the company and simply has to pay under the guarantee and hope for the best. However, there are things you can do:

• If you are borrowing from a financial institution make sure they take a debenture over the company. That way they pretty much get paid first out of any asset realisations in an insolvency and if you pay in full under your guarantee you can stand in their shoes as a subrogated secured creditor
• If you can limit your personal guarantee by amount or by time or to a specific loan
• Seek to spread the liability between all the directors and shareholders who stand to gain if the company does well. Getting the bank to agree to limit the personal guarantee liability to say £50,000 to each director would do this, otherwise the director with the most assets can be hung out to dry
• Before giving a guarantee think or talk to us about the alternative ways to fund your company.

How can McTear Williams & Wood help?

At McTear Williams & Wood we have helped countless numbers of directors negotiate settlements of personal guarantee liabilities. Financial institutions will very rarely pursue a director to bankruptcy and there is usually a deal to be done. Each negotiation is case specific but the maxim if you don’t ask you don’t get usually holds true.

In extreme cases you may need to way up going into a Debt Management Plan (“DMP”), an IVA or Bankruptcy. We can help with that too. Be very wary of day time TV specialist DMP and IVA specialists. They are mostly one trick ponies selling the service they have on the shelf and one size does not fit all. Talk to us before committing yourself.