Legal Brief

Wednesday, 15th August 2012

Fiona Ormond

Solicitor with MJ O’Connor Solicitors, Confederation House, Cork Road, Waterford. 051 355663 This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

Personal Guarantees

Recent years have seen the Irish Courts deal with an increasing number of cases whereby banks are making applications to the Courts for Judgements against lenders on foot of unpaid loans and personal guarantees given by the lender or indeed a third party. The practice of seeking personal guarantees became common practice at a time when banks were lending large amounts of money to lenders, often companies and who sought a form of personal assurance mostly from the owners of the corporate entity securing funding as to the repayment of loans.

However, the bank recovery of such loans on foot of such personal guarantees is not entirely straight forward. In 2010 Judge Peter Kelly in the Commercial Court refused the application for summary judgement by Anglo Irish Bank against three solicitors who gave personal guarantees. The judge held that the matter should be heard at trial as it was claimed that the bank had informed the lenders that the personal guarantees sought were merely a "form filling exercise" and would not be called in.

In the recent case of Ulster Bank Ireland Limited –v- Roche, Judge Frank Clarke raised a number of interesting points where the Bank was seeking judgement in relation to a personal guarantee given by a non married partner who had no commercial interest in the Company. In this the Court held that the bank was placed on an obligation to inquire as the circumstances of the personal guarantee where it was clear that the party giving the guarantee might not in fact be entering into it fully and freely and where there was a non commercial aspect to the guarantee given. In such case the guarantee was given by Ms Buttimer whom the court held was in a position whereby undue influence could have been exerted against her by her partner in her giving a personal guarantee where she has limited legal rights and for a company in which she had no legal interest in, therefore the bank were obliged to inquire. However the High Court has granted judgement to Bank of Scotland against a property developer in circumstances where the Court held that the guarantee given six years previous was valid, one of the reasons being that the businessman had entered into the guarantees freely and was an experienced businessman.

Therefore whether a court will find an individual liable on foot of such personal guarantees is not straightforward. A number of factors will be considered including was that individual an experienced business person, did they have a commercial interest in the company, were they a spouse or civil partner, were they informed, did they receive legal advice and was that legal advice independent and were proper formalities followed most especially by the bank.

This article does not constitute legal advice