Can I get out of a personal guarantee?

[Stu1978]

I was a shareholder of a company, I couldn’t be a director due personal matters.

Whilst a shareholder, I took an overdraft for the business.

I sold my shares but remained involved with the business.

I increased the overdraft and I guess this must have had a personal guarantee attached but I don’t remember signing one.

The bank has called in the personal guarantee. Do I have to pay it or because I was not legally involved in the business can I get out of it? Should the bank not have checked that I was a shareholder or director?

[PallasAthena]

So when you increased the overdraft you were neither a director or shareholder? In what capacity were you acting that allowed the bank to accept your instructions?

[atticus]

You have been naïve. When selling your shares in a company you should always ensure that you are released from guarantees. Usually this is done by refinancing or getting the bank to accept the buyer as replacement guarantor.

Sorry, but if the guarantee was validly given, it is binding on you.

[Stu1978]

PallasAthena i had stopped being a director and shareholder due to needing it to not show on paper. I was still actively involved in the business and on the bank account.

[Stu1978]

atticus when the overdraft was extended with a guarantee I wasn’t actually a director or shareholder. I was still involved with the business activity and finances so was still on the bank mandate.
I was hoping that actually the bank might be in the wrong for not doing due diligence to check whether I was legally on the business paperwork.

I stopped being involved at all a few years back and so didn’t think this was my problem. Also I think that the directors could have repaid the overdraft when they closed the business, but I wasn’t involved in that.

I ignored the bank asking for the money and last week I was told it’s been sent to collections. I’ve raised a dispute and said I’ve no idea what this is about and that i wasn’t part of the company.

I’ve also told one of the directors that if they pay it I won’t open a fraud case against them. I’ve been told this might be extortion now, could this get me in trouble?

[atticus]

You need to look at the guarantee document, and possibly take advice on it.

If you pay, you woud have a claim against the company for whatever that may be worth.

[PallasAthena]

There's no law that says a personal guarantor for an overdraft has to be a shareholder or director even though they are in practice normally the guarantors. As you were a signatory to the bank accounts and authorised by the company to instruct an increase in overdraft I can't see how not being a director/shareholder could be a defence to the bank calling on your guarantee.

I doubt that the distinction you are trying to draw between being "actively involved in the business" but "not legally involved in the business" is a difference that carries much weight in disputing your liability under the guarantee [but I am not a lawyer].

You should read what the guarantee actually says and if you don't have a copy ask the bank for it. But it sounds like it will be binding on you.

How much money are the bank demanding? If it's a significant sum I suggest you consult a solicitor for advice.

[Stu1978]

atticus Thank you.
It just says basically I have to pay it if the business can’t. The business was liquidated and so it’s completely gone.
The directors told me that the guarantee would be called in before they did the liquidation but I ignored it because thought it was their problem because I don’t remember signing it.

if I’ve lied to the bank and told them I didn’t know even though someone else told me, can I get in trouble for that?

[PallasAthena]

How much are the bank asking you to pay?

I don't understadn what you mean by "if I've lied to the bank and told them I didn't know even though someone else told me" but as a rule of thumb telling lies to a bank that's trying to enforce a contractual right it believes it has will get you into trouble.

[Stu1978]

PallasAthena
its for £40k.

The bank have said I should have contacted them earlier because it’s been past onto a debt collection company now to deal with in the banks behalf. I’ve said I didn’t know about it and that I didn’t sign anything but the directors have told me a few times about it and told me before they did the liquidation that it would get called in.

I really don’t remember if I signed it or not. If I were to try suggest the directors committed fraud would them having told me about it a few years ago go against me? Can threatening them with legal action if they don’t pay it go against me? Or is it ok to do that if I believe I didn’t sign it?

[PallasAthena]

Whether or not you signed a personal guarantee is the first thing you need to resolve. You don't have it so ask the bank for a copy of the guarantee. Whether you signed it is question of fact, not whether you remember doing so.

I think it unlikely the bank would have got to this stage if you hadn't signed a guarantee but nevertheless they need to show that you did sign it.

Given the amount involved you should get professional legal advice.

[Stu1978]

PallasAthena i got a copy of the personal guarantee and it was signed online. They’ve said this was sent to my address. The letter has my name and address on but I don’t remember receiving it.

[atticus]

Get the guarantee. Take advice. If you signed it, then the greater likelihood is that you are liable, up to any limit. No amount of posting here will get you a different answer.

[Pezza54]

Please read the article at https://hallellis.co.uk/unenforceable-guarantees-legal
It is unlikely that the guarantee is unenforceable but you never know.
If you have to pay the £40k to the creditor you have a claim against the company to recover your loss. The creditor will have ensured there aren't any assets available to be sold to repay all or part of the company loan.
You mentioned you haven't been involved with the company for a few years and the directors may have been fraudulent.
Directors of a company can be found guilty of fraud or negligence if:
the company continues trading when the directors know the company is in a dire financial situation, making matters worse
directors sell assets significantly below market value
directors buy expensive company cars

If you suspect any of the above you should contact a solicitor. The solicitor may decide to appoint a forensic accountant to examine company accounts in the last few years of trading

[atticus]

UK insolvency law is wonderful in theory, but in practice little use for ordinary creditors like the OP.

NB while the OP has used the word "fraud", he has said nothing yet to suggest that he has any evidence of dishonesty.