AIB Plc. -v- Rostaff Property Development Limited & ors [2017] IEHC 533
In this case, the Irish High Court has provided useful guidance to all those contemplating acting as a guarantor.
Below is an extract from the case, which makes it clear that it is essential for those approached to act as a guarantor to obtain independent legal advice.
“…E. Giving a guarantee for the debts of a loved one engaged in lawful business (or a private limited company operated by a loved one and engaged in lawful business), is effectively taking a gamble that (a) all will go well and/or (b) that if things go badly, the loved one will act as one expects. Unfortunately, it is a feature of life that companies fail and people do not always act as one might expect. So it is important to be cautious before ever giving a personal guarantee.
F. Again, much of the financial misery that can arise when a guarantee is invoked could likely be avoided or ameliorated by a proposed guarantor availing, before entering into the proposed guarantee, of the services of a solicitor competent to advise on the proposed arrangement. The cost of engaging a competent solicitor to provide such independent advice typically pales in comparison with the monetary risk and personal stress that can arise when demand is made under a guarantee.
G. Useful questions that a person asked to become (a) a personal guarantor to a loved one engaged in lawful business and/or (b) to a private limited company operated by a loved one engaged in lawful business, include, but are not limited, to the following:
(1) How much am I being asked to guarantee?
(2) Could I pay back the amount guaranteed without difficulty?
(3) Do I have to put up assets as security?
(4) Could I afford to lose those assets?
(5) Why does the person seeking the guarantee need it?
(6) Has s/he explored other means of obtaining her or his desired business end?
(7) Can s/he (or a company they operate) be trusted to pay all of her or his (or its) bills?
(8) Am I satisfied to lose money and/or other assets for this person?
(9) Will the financial institution benefiting from the guarantee give me relevant ongoing information?
H. The above questions are by way of general indication only. There is no substitute for obtaining independent, client-focused advice, before entering into such arrangements, from a solicitor competent to advise on guarantee arrangements.”
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Kevin Modiri is a Partner in our expert Inheritance Disputes team.
If you have any queries in relation to the subjects discussed in this article, please get in touch with Kevin or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.