It has become common place that directors give personal guarantees for companies. As more and more companies enter into examinership both creditors and guarantors need to be aware of their exposure to and the limiations of these guarantees.
RELIANCE ON GUARANTEES
Examinership will not automatically prohibit a creditor from relying on a guarantee. While guarantees cannot be enforced while the company is in examinership, this protection falls away once the company is no longer in examinership
Indeed, the recent Birchport Limited/Ocean Bar case shows the willingness of a creditor to accept a scheme in an examinership where there is a guarantee. In this case, ACC Bank accepted a scheme whereby €378,000 of a secured debt of €1,370,000 was treated as if it were unsecured and was written down with the other unsecured creditors. The presence of personal guarantees was a significant factor that encouraged ACC to accept the scheme. ACC may enforce those guarantees in the future to make good its loss, although of course a guarantee is be no more valuable than the assets of the guarantor.
Guarantors should therefore be considering:
- what exposure they may have in respect of guarantees,
- whether they have the assets to meet that exposure; and
- if there are co-guarantors, whether or not those co-guarantors will be able to satisfy their portion of the guarantee.
LOSS OF THE GUARANTEE
In an examinership, a creditor will lose the benefit of a guarantee in an examinership if they do not comply with certain strict requirements.
Where the examiner gives the creditor notice of a meeting of the creditors, the creditor must serve written notice on the guarantor offering the guarantor certain rights. If the creditor fails to do so, or does not do so within the tight time periods specified, then the creditor cannot enforce the guarantee.
The notice referred to above must offer to transfer to the guarantor any rights the creditor may have in respect of the debt to vote in respect of any proposed arrangements. This notice must be served:
- if 14 days or more notice is given of the meeting, at least 14 days before the day of the meeting (which could mean that the creditor must serve notice on the guarantor on the same day as receiving notice from the examiner); or
- if less than 14 days notice is given of the meeting, not more than 48 hours after receipt of the notice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.