Stop bank raid on our homes, say business owners
The article by Alex Hawkes, published in the Mail on Sunday on 6th May, misquotes me but does bring up some key issues.
I am not sure forcing directors to obtain legal advice every time they sign a personal guarantee is practical although directors should get that advice. The problem is wider than this; there is no insistence for anyone to understand their duties and responsibilities before becoming a Director including how the corporate veil can be lifted in certain circumstances such as with a Personal Guarantee.
Anyone can simply complete an online form to become a Director but often do not realise the responsibilities that come with that until it is too late and they are on the wrong end of insolvency and/ or Personal Guarantee claims.
As to banks taking business owners homes, certainly the situation of Dean D’Eye, set out below, reflects the absolute carnage following the behaviour of many banks in the 2000’s. Mainstream banks these days are a little more cautious and now, to some extent, struggle to provide finance to the SME (Small and Medium size) business market due to the cost and regulation.
This has created a market for a plethora of unregulated business finance organisations, many of which solely rely on Personal Guarantees from Directors for security without even taking a debenture on any of the Company’s assets. Some of these organisations exercise virtually no due diligence in the process and the cost of finance is relatively high.
The balance and tension between over regulation and a free market is a dynamic that it is difficult to manage but a consequence of this lending is that many businesses use these facilities as last resort finance. Desperate to keep their business alive they continue to borrow from multiple organisations until the repayments would bring down the best performing Company.
This leaves the guarantors with an insurmountable sum of personal debt with organisations that, in some instances, just go straight to bankruptcy proceedings to enforce their Guarantees and the whole process often cripples any effort to rejuvenate the business.
Proper understanding by Directors of their duties and responsibilities might at least help some of them take appropriate recovery advice before resorting to this sort of lending when things are not going too well; such funding as part of a structured recovery plan might have a much higher chance of survival. I know this only too well having turned around 75 companies in 25 years prior to dedicating myself to Personal Guarantee issues.
Read the Mail on Sunday article HERE
09 May By Mel Loades