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We can’t guarantee it

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March 2, 2020
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Every time we try to fulfill our obligations as lawyers when issuing a solicitor’s certificate for people giving bank guarantees, people roll their eyes, or cut us off “I know, I know, I’m personally liable”.

Do you really know what it means to give a personal guarantee?

In a general sense, you are guaranteeing to perform the obligations of another person or a company, in relation to a financial loan, if the principal cannot.  Sounds straightforward doesn’t it?  Well it is.

However, where it can get complicated, is if things don’t quite pan out the way everyone planned.

We have had two cases in recent times, where people provided a personal guarantee, the company they were supporting went into liquidation, and then years later, companies (often insurers) come looking for the guarantors.  In both cases, we are talking about many years after the companies went under and both were construction companies.

All parties involved in lending money and guaranteeing those loans, need to obtain thorough legal advice about their obligations, particularly in relation to how long a guarantee can last.

These days, most banks and lenders require people to obtain a solicitor’s certificate to say they have obtained “independent legal advice”.  Some still don’t, however you need to tick a box to say you were given the opportunity to obtain legal advice.

The most important thing to do is:

  1. Read the documents thoroughly.  If you don’t understand some or all of the wording, ask someone to explain it to you;
  2. If you cannot afford to be a guarantor, don’t do it.
  3. Pay the small amount of money required to obtain independent legal advice.  It will be way cheaper than dealing with us litigators many years down the track.
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