Lenders do not always treat guarantors fairly in the eyes of the law. When this occurs guarantees may be avoided.
The First Rule of Bank Guarantees
If you have given a guarantee and are called upon to pay it, do not do so until you have taken legal advice. By paying the guarantee, you may waive any right you have to avoid it.
Your obligations as Guarantor
Most bank guarantees seek to make the guarantor a ‘joint obligator’.
If your guarantee does not make this clear, and if arrangements between the borrower and the bank are altered without your permission, then your guarantee may be void.
Has your company been treated badly by the bank?
Most bank lending is covered by a facility letter. This is the contract between bank and borrower which governs the terms of the loan. If the bank breaches the facility, they can be held liable. It can be argued that it is an implied term in any guarantee that the bank will not breach its own facility terms. All too frequently banks act in breach, which may discharge the guarantee.
Banks make mistakes – what they say is not always true
It is often assumed that a bank can be trusted, which is not always the case. In a recent court action, a senior bank manager swore in an affidavit that my client had not been given a £20m banking facility. This was surprising as I had a copy of the document in my possession.
If you are presently the subject of a guarantee, particularly where you are leaving a business, take the trouble to consult the terms of the guarantee and serve notice on the bank to be discharged.
There is always negotiation.
When you have analysed your circumstances, consider negotiation.
A client of mine, who was the subject of a £2m guarantee given to Barclays Bank, recently compromised that guarantee by the payment of 10 monthly instalments of £20,000 .
Unfortunately, commercial litigation and disputes with banks are sometimes a fact of commercial life; never give up hope, even in the toughest of circumstances there is often a way forward. If you genuinely believe that your case is just, take the time to have a lawyer consider it carefully.