Question

Dear Jon

My partners and I provide personal guarantee for a loan that was taken out by our company based in Mauritius in 2018 for raw materials for our manufacturing company in West Africa.

Unfortunately, commodity prices collapsed in 2018 and the company was unable to service the debt of $1.4m anymore. The loan agreements and personal guarantees are based on UK law.

The lender verbally called the personal guarantees in 2020 and we negotiated an agreement that required $200k immediate payment and then the balance to be negotiated later.

Payment was made for the $200k.

After months of negotiation trying to arrive at a value that we can pay monthly, the lender rejected and imposed a schedule which the company and shareholders were forced to accept under threat of legal action.

After making 3 payments… we are unable to make complete payment because I am unable to pay.

One of the shareholders has written the lender that we are likely to default because I have refused to pay even though he knows that this is false.

The backstory is that I ran this business and tried to make it work – company is owing my back pay for a few years, and this is one of the reasons I am unable to pay.

The lender has now responded that if we default, they will go to court and claim the full outstanding amount from me. The reality is that I don’t have any asset or funds they can take either in the UK or anywhere else because I am just rebuilding from the situation, I put myself in by letting emotions and not logic drive the last 5 years.

Do you have any advice on how to handle the situation and respond to the lender?

Answer

Dave,

How many other people signed as guarantors for the loan?

Have you spoke with them, and what is the consensus between you all?

If you all signed as guarantor, why would the bank or lender just come after you? As guarantors, you are all just as liable and responsible for the loan. I would ask why was UK law used in the agreements?

Was it a UK bank? Are you the only partner or guarantor living in the UK?

Was the threat of legal action in the UK?

Who was the shareholder who wrote to the lender? They seem to be more in charge??

Sorry for all the questions, but I need a few additional details. And you may need to seek legal advice, when you say “ lender verbally called the personal guarantees in 2020”.

From a debt stand point, if you live in the UK and have no assets, there is very little a bank/lender/collection agency can do. And you could also include this debt in any debt management or insolvency proceedings here in the UK. It would relieve you of the debt, but not the other guarantors.

The debt would also need to be collected here in the UK by a UK collection agency in accord with UK laws and rules.

Let me know, and we can look at this in more detail.

Regards,

Jon

4 Responses

  1. Hi Jon.. Thanks for the detailed response. Here are my responses to the questions raised.

    How many other people signed as guarantors for the loan? “7 other people”

    Have you spoke with them, and what is the consensus between you all?
    “They are happy to pay because they can, and view is I should find a way to pay. So our positions are not aligned.”

    If you all signed as guarantor, why would the bank or lender just come after you?
    “I was surprised as well that the lender decided to get involved in an internal matter. Maybe it’s a way to try to scare me in case I am just being difficult.”

    As guarantors, you are all just as liable and responsible for the loan. I would ask why was UK law used in the agreements? “Most lenders prefer UK law because they don’t trust local commercial courts”

    Was it a UK bank? Are you the only partner or guarantor living in the UK?
    “It was debt fund not a bank. Yes, only one living in the UK”

    Was the threat of legal action in the UK?
    “Since the agreement is under UK law, I assume that’s the only place they can take legal action.”

    Who was the shareholder who wrote to the lender? They seem to be more in charge??
    “One of the shareholders, not in charge, just the one that was handling the lender, so the message was basically trying to seek sympathy and I guess put me under pressure”

    Sorry for all the questions, but I need a few additional details. And you may need to seek legal advice, when you say “lender verbally called the personal guarantees in 2020”.
    “they basically claim that they exercise their rights to take action if we don’t agree to their position. which is what has been happening. The issue at this point is that I can’t agree because I don’t have.”

    From a debt stand point, if you live in the UK and have no assets, there is very little a bank/lender/collection agency can do. And you could also include this debt in any debt management or insolvency proceedings here in the UK. It would relieve you of the debt, but not the other guarantors.

    “This is good to know. As i am willing to enter an implementable deal with them if they are reasonable. Also worried about anything that affects my credit situation here.”

    1. Dave,

      Thanks for the detailed information.

      You can only pay what you can pay, each person’s financial situation is different. I would hope your business partners understand this.

      If this account is being reported to any UK credit bureaus, it can affect your credit, as well as the other’s credit.

      My advice would be to pay what you afford to pay, and if things go south, again you can include the account in any UK debt management or insolvency options. The lender is not going to go just after you. If the account is being paid in someway, you should be left alone. As you have no assets, the lender would chase the other partners first, especially if they have assets. In addition, while the lender likes using UK laws for loans, UK also has excellent rules and laws if you are in debt. The lender may wish to chase one of the other partners if they are in a country which makes collecting a debt easier than in the UK.

      Regards,

      Jon

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