I set up a firm in the UK a couple of years ago which did not take off successfully. At the moment, it has a creditor of tens of thousands pounds. If this firm goes bankrupt, then will this creditor be wiped out? My problem is that in one of the emails to this creditor, I mentioned that I would sell my personal assets (property) in order to pay them. This happened at a very late stage when they pressed me for payment. Would this email be regarded as a personal guarantee such that the creditor now can go after me personally even after the firm announces its bankruptcy?
Hi, Thank you for your question and welcome to Just Answer.
Potentially this could be deemed as a personal guarantee as under the Statute of Frauds you can only take responsibility for another persons debt in writing.
Did you only make this claim in email to re assure the other side or did your company get something from it?
Also is it a limited company.
It is a limited company. When I wrote that in the email, I only wanted to reassure the creditor that I was in a good faith to pay off the debt.
I am the company's director
Is there a way I could get out of this? When I wrote the email, I was not really aware that the company could announce bankruptcy and wipe out the debt. And I was still in the hope to maintain the business. But now the hope has gone, so it doesn't make sense for me to sell my house, pay off the creditor and then wind up the company.
Hello, are you there/
Hi, Thank you for your response.
Has the Creditor actually called on the guarantee?
What do you mean "called on the guarantee"?
i.e has the creditor asked you to pay?
Yes, they are demanding payment now
I would say the following - 1) the guarantee is not a deed and 2) there was no consideration for the guarantee (and it was only given as a show of good faith) - accordingly it is not a valid guarantee and therefore you are not obliged to pay out under it.
The problem you then have is that it is completely their prerogative whether they want to take you to Court or not.
If they do try and sue you, if it were me I would not be confident enforcing a guarantee given over email.
Does this mean that the court would look at this guarantee given over email and do not think it is valid enough to be enforced?
The elements to the guarantee are as follows:
1) It must be in writing - you have ticked that box;
2) it is still a contract and must be for valid consideration i.e a promise for a promise - you do not have valid consideration as you only gave the guarantee in good faith - you did nt give it for example so that the creditor would give the company more time to pay;
3) if there is no consideration then it would have to be executed as a deed - a deed cannot be executed by email.
The Court would likely say the deed is unenforceable for lack of consideration but that does not mean the creditor wont "try it on"!!
On 2), when I said I would sell my personal assets, wouldn't that mean/imply that I am asking for more time to pay?
Hi, May be but it is a long shot. Consideration would be something like " I here by agree to personally guarantee the obligations of the Company in consideration for additional time to pay". Simply agreeing to sell your personal assets is very ambiguous and I dont think it is valid consideration.
I would just tell them to take it up with the liquidator!
Can the liquidator be able to defend me in case the creditor bring up this email about personal assets pledge?
No, the liquidator only acts in the interests of the company. You will have to defend yourself.
You do have a good defence though. This does not sound like a valid guarantee.
Thank you for reassurance. How would I defend myself? Would I need to appoint a lawyer or consultant?
If the creditor takes sensible advice they will know that pursuing this is ill advised.
Good to know that! Also, I did not give formal personal guarantee when I signed up the creditor. They gave me the credit without securing my personal guarantee. Now that they press me for payment and I gave a good faith email, obviously this happened after the credit was granted and consumed... So this guarantee should not be enforced on this ground either. Am I right?
Hi, They cannot enforce the one in their credit agreement, if you did not sign it, that is correct.
Would they be able to argue that they were valid considerations, because they chased me several times and so I mentioned that I was considering/pursuing the sale of my property several times... ?
Hi, Did you actually say you would pay them off if you sold your property?
I had to look through my emails for the precise wording. Basically, they ask for payment, and I said there has been no business income so far and so I am considering selling my property to pay them etc.
Hi, I do not think that is valid consideration. It is too ambiguous - the fact that you say "considering" is not enough to commit you to a legal relation.
As I said though be prepared for them to "try it on"!
And then the property market was not doing great. So I told them that I couldn't sell it, and their debt was still outstanding. And they are pressing for payment again. And I was advised to liquidate the company, when I then became aware that I did not have to sell my property to pay for them...
Hi, You would have a strong defence against this being a guarantee. If they start making formal demands in writing and threatening court in 7 days or they get a solicitor to write to you, I would go to a local solicitor and ask them to held you fend it off.
Would you like to defend for me if needed?
Thank you. I am afraid I cannot the site prohibits it. Contact the Law Society - they will recommend a solicitor in your area. This probably wont go to Court and it will just be a case of a few firmly worded letters. As I also said if the creditor is properly advised they will know this is not a good guarantee claim.
Thank you! Do you also happen to know how much a liquidator would cost to wind up the company? Probably also need to do that...
Does the company have any assets? Have you closed it down and ceased trading?
The company does not have any assets, except for a few hundred pounds cash in the bank account. It is still live at the moment, but has no customer nor trading activities. There have been a bunch of costs which have been paid by myself.
The cost of a liquidator may be expensive. A start point would to stop all trading activities and go and see an insolvency practitioner that will help to absolve any personal liability on you. The IP will then tell you the best and cheapest way to dissolve the company.
Where do I find an IP?
http://www.icaew.com/contact-us contact these people they will recommend one in your area or contact http://www.r3.org.uk/
A stupid question, what is the difference between an Insolvency Practitioner and a liquidator?
A liquidator is an insolvency practitioner. It is a profession you have to take exams and be apart of an association etc. No such thing as a stupid question here!!
So liquidator = insolvency practitioner, right?
thanks so much AJ
That is correct - to be a liquidator you must also be an IP!
No problem. Best of Luck. AJ
Did you mean that I first see an IP for my personal liabilities side of the things, who will then point me to liquidate the company, rather than see a liquidator for the company directly?
Yes - go to an IP they will be able to help you with everything. They will be able to best guide you on liquidating the company.
The fact that you have to taken advice from an IP will help to absolve you of personal liability as a director.
Got it. This is great advice
Final question, I don't have much money left, really... So is there an idea you could give me as to how much this roughly costs?
It really depends. If you are able to just dissolve the company then not much. As long as you have stopped trading it then it really doesnt have to cost you anything, you could just do nothing. It is worth though at least having an initial meeting with an IP just to talk through the options.
Got it. Thank you very much
I am happy with your advice and will look for an IP for an initial assessment.
2 Years Insolvency Litigation
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