We have previously written about the dangers of personal guarantees. But what happens if you have signed a guarantee and you are being pursued for the debt? Below is an example of how we have helped clients negotiate a settlement of a debt they had guaranteed.
Background – Personal Guarantee Debt
We were engaged by the directors of a failed business who owed debts to a financier. The company previously sold cosmetics but had ceased trading. The directors, who were married, had provided personal guarantees to a financier who had provided finance to purchase equipment and materials. There was a shortfall to the financier of over $40,000 which the directors had guaranteed.
Our Clients’ Options
The directors did not own any significant assets and only one of them was currently working. Based on their circumstances, the options available were:
- Bankruptcy, which would release them from their debts;
- A proposal for a Personal Insolvency Agreement (PIA) pursuant to Part X of the Bankruptcy Act 1966; or
- Seek to settle the debt owed to the financier to avoid bankruptcy.
We were engaged to negotiate a settlement with the financier on our client’s behalf. And we made an initial offer to the financier including advising of our clients’ financial position and the fact that if our clients went bankrupt the financier would receive nothing.
After protracted negotiations with the financier, the financier agreed to a reduced amount of $15,000 in full settlement of the debt. Our clients thereby avoided bankruptcy.
Negotiations with the financier took over three months and during this period the financier was trying to harass our clients into making an increased offer including:
- Repeatedly issuing demands via emails, telephone calls and phone messages;
- Repeatedly issuing threats of legal action for the recovery of the debt; and
- Repeatedly issuing threats of listing our clients with a credit reporting body.
During this period we were assuring our clients that these actions were likely just unfounded threats and part of the financier’s negotiating tactics. Notwithstanding this it was a stressful period for our clients and they were glad they had us on their side. They were naturally extremely happy with the outcome we achieved for them.
Contact us for Assistance
If your business has trouble keeping up with finance payments and you have provided a personal guarantee, please contact us for a free, no-obligation consultation. Pearce & Heers is well placed to explore all available options with you, and guide you through the difficult process.