Settling-a-personal-guarantee-debt

Article by Jimmy Chong, Accountant in our Brisbane office.

It is not uncommon for directors to provide personal guarantees on loans taken by their businesses. If a guarantee is given, when a business defaults on payments, lenders will exercise their right and recover the debt from the directors.

So, what should you do if you provided a personal guarantee and your business is struggling? One of the things you can do is to negotiate a settlement. We have successfully negotiated settlements for numerous debts our clients have provided personal guarantee for. Below is another example of how we assisted a client in settling their personal guarantee debt.

Background – Personal Guarantees Owed After Business Failure

Our clients were the directors of a cosmetics company which had closed its business. The directors had provided personal guarantees on a loan given to the company for the purchase of equipment and materials. The business was unable to pay the loan before it ceased trading, and the directors were pursued by the lender for a shortfall of over $40,000.

Options Available to Our Clients

Our clients were married and only one of them had a source of income, with no significant assets in either of their names. Due to their circumstances, the options available to our clients were:

  • Bankruptcy which would release our clients from their debts. This is always an option in these types of circumstances and the effects of bankruptcy are summarised here;
  • Seek to negotiate with the lender to settle the debt; or
  • Make a proposal for a Personal Insolvency Agreement pursuant to Part X of the Bankruptcy Act 1966 to avoid bankruptcy.

Based on our advice, we were engaged to negotiate a settlement with the lender on our client’s behalf. A proposal was given to the lender with the advice that the lender would get nothing if our clients were made bankrupt due to their financial position. We also set out for the lender the costs they would incur in obtaining a Judgment against our clients and bankrupting them.

Successful Outcome – Settlement of Personal Guarantee Debt

It was a difficult period for our clients and they were continuously harassed by the lender with threats of legal action for the recovery of the debt and listing our clients’ default with credit reporting agencies. We assured our clients that the threats were most likely baseless and were tactics usually employed by lenders to negotiate a higher settlement amount.

It was a long and protracted negotiation but we finally convinced the lender to agree to a settlement sum of $15,000.

Contact Us for Assistance

If you have provided personal guarantees and your business is unable to keep up with payments, we can help. Get in touch on 1300 906 966 or send us an email to mail@cactusconsulting.com.au to arrange a free confidential, no obligation initial discussion today.

Posted on 20-07-20 in Bankruptcy Assistance, Business Solutions, Debt management, Money management and bankruptcy.