Personal Guarantee backed Secondary Lenders and Statutory Demands - Why?
We are strong supporters of Secondary Lending, provided on sound financial principles, as the main banks have effectively withdrawn from SME lending.
But, one does have to question the sort of lending that is purely secured on a personal guarantee with no recourse to the business.
And, in particular, as soon as things go wrong, these lenders issue immediate bankruptcy proceedings on the guarantors. Often there are in excess of 4 such lenders (the others having been sold in by the first one) who all issue statutory demands at the same time.
The guarantors (normally Directors of the Company) are, financially, mortally wounded as any attempt by them to raise money from property or get back on their feet financially, to repay such debts, is thwarted by this action. If the bankruptcy process is successful then the only guarantee for those secondary lenders is they will achieve, at best, diminutive and probably zero recovery of their monies; as the fire sale of personal assets, whose value has now been demised by such action, is just enough for the trustee in bankruptcy to recover his costs.
This is all too common a scenario in 2016. We know from years of experience of dealing with personal guarantee issues that by facilitating a guarantor to get back on their feet financially, they are in a better position to provide a settlement on a personal guarantee.
Why is it that secondary lenders who adopt the practice of issuing immediate bankruptcy proceedings don't see the folly of their actions?
5 October By Mel Loades