PG question for LEXUS LAWYER

[CYNthesys]

Hi,
Can I have your views please on a personal guarantee question that Ive never been able to get a definitive answer to.
A personal guarantee was executed to secure modest business borrowings. A legal charge was executed to support the PG.
The Principal subsequently lost mental capacity and hadn't made an enduring power of attorney.When the lender was put on notice of the principal's incapacity, repayment of the outstanding loan was demanded in full.
The lender was informed that as there was no EPA in place an application would need to be made to the Court of Protection before any further dealings with the principals property.
The lender turned a blind eye to this requirement and continued to rely on the terms of the contract, appointed LPA Receivers to take possession and dispose of the charged property without any applications being made to the courts. The Bank and LPA receivers just helped themselves, disposed of the property and incurred costs in excess of the debt in realising the Bank's security. This occurred whilst the principal was detained in hospital under a section 3 MHA 1983

Can I have your thoughts on this please as the Principal was not insolvent, it was simply his lack of contractual capacity that prevented him from meeting the Bank,s demand.

The LPA receivers acted as the Principals agent throughout despite being informed by the Bank that the security owner had lost mental capacity

[LEXUSLAWYER]

Re: PG question for LEXUS LAWYER

Hi,
Can I have your views please on a personal guarantee question that Ive never been able to get a definitive answer to.
A personal guarantee was executed to secure modest business borrowings. A legal charge was executed to support the PG.
The Principal subsequently lost mental capacity and hadn't made an enduring power of attorney.When the lender was put on notice of the principal's incapacity, repayment of the outstanding loan was demanded in full.
The lender was informed that as there was no EPA in place an application would need to be made to the Court of Protection before any further dealings with the principals property.
The lender turned a blind eye to this requirement and continued to rely on the terms of the contract, appointed LPA Receivers to take possession and dispose of the charged property without any applications being made to the courts. The Bank and LPA receivers just helped themselves, disposed of the property and incurred costs in excess of the debt in realising the Bank's security. This occurred whilst the principal was detained in hospital under a section 3 MHA 1983

Can I have your thoughts on this please as the Principal was not insolvent, it was simply his lack of contractual capacity that prevented him from meeting the Bank,s demand.

The LPA receivers acted as the Principals agent throughout despite being informed by the Bank that the security owner had lost mental capacity

Hi it's not a particular area of guarantee law that I can ever recall being faced with. However, I will attempt a reply based on general experience and for want of a better term...a little common sense.

It seems to me that at the stage the Lender was advised of the incapacity of the Surety. a specific duty of care came into being for them to act in the best interests of the Surety and you would assume the sensible course for them to adopt, would at least be to seek directions from the Court of Protection.

Saying that I am also making the assumption that there was no other party within the business or a spouse/partner of the Surety that was willing to provide alternative to the Lender?

Whilst you should never predict the outcome of a Court hearing. I do suspect in the circumstances and especially because a business was involved. The Court may have appointed an Administrator to look after matters and if necessary, to dispose of any assets in an orderly manner for the benefit of the estate of the incapacitated surety and all of its creditors. Obviously, a secured creditor would have been paid in full if sufficient funds were available and they would be first in the pecking order. But at least somebody would be accountable to the Court for any expenditure incurred in the process and the balance available to the estate after all creditors were settled (or the indebtedness of the estate if it eventually became insolvent whilst being liquidated).

You mention there was no case of insolvency involved. so I am interested to know what happened to the business in all of this. In particular. did it continue to trade after the appointment of LPA Receivers and if so. did
the Receivers run the business day to day and did the business or any of its stock or trading assets form a part of the sale in addition to the property?

Do you have a copy of the Personal Guarantee, the Legal Charge, the Lender's demand for repayment and the instrument appointing the LPA Receivers. Together with details of Lender and Receiver. The amount of the Loan outstanding and how long since all of this took place. I may be able to give more specific advice following a review of those documents. It could be that the Lender actually had a contractual right within the PG or supporting charge, to take the action it did without the need to refer to the CofP!

Best regards
LL

[CYNthesys]

Re: PG question for LEXUS LAWYER

Hi
Thanks for your reply, in answer to your questions
1. The business had ceased to trade some 12 months prior to putting the bank on notice that the principal had lost mental capacity.
2. When trading the Ltd business operated from an unregistered commercial property that was solely owned by the Principal.
3. The property consisted of 3 units, 2 of which were let out to other businesses and generated a rental income.
4. After the principals business ceased trading the Bank was happy to receive the monthly repayments direct from from the Principal, there were no arrears or defaults whatsoever. However once the Bank was put on notice of the Principals incapacity repayment in full was demanded.
5. I have copies of everything.
6. According to the lender and the contract there was a contractual right to act in that way, but my view is that there was a breach of contract on he lenders part.
I will send you a PM with further info

Thank you for reading.

[LEXUSLAWYER]

Re: PG question for LEXUS LAWYER

OK but please make it brief as was told off earlier for going PM at poster's request and I don't want to break any rules on the site.

In view of your latest post it is essential for me to see the documents before I can come.not further.

Regards
LL

[LEXUSLAWYER]

Re: PG question for LEXUS LAWYER

Last line should read "comment"