Reliance On And Loss Of Guarantees In Examinerships

Author:Mr Declan Tormey
Profession:Reddy Charlton McKnight
 
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It has become common place that directors give personalguarantees for companies. As more and more companies enter intoexaminership both creditors and guarantors need to be aware oftheir exposure to and the limiations of these guarantees.RELIANCE ON GUARANTEESExaminership will not automatically prohibit a creditor fromrelying on a guarantee. While guarantees cannot be enforced whilethe company is in examinership, this protection falls away once thecompany is no longer in examinershipIndeed, the recent Birchport Limited/Ocean Bar case shows thewillingness of a creditor to accept a scheme in an examinershipwhere there is a guarantee. In this case, ACC Bank accepted ascheme whereby €378,000 of a secured debt of€1,370,000 was treated as if it were unsecured and waswritten down with the other unsecured creditors. The presence ofpersonal guarantees was a significant factor that encouraged ACC toaccept the scheme. ACC may enforce those guarantees in the futureto make good its loss, although of course a guarantee is be no morevaluable 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; andif there are co-guarantors, whether or not those co-guarantorswill be able to satisfy their portion of the guarantee.LOSS OF THE GUARANTEEIn an examinership, a creditor will lose the benefit of aguarantee in an examinership if they do not comply with certainstrict requirements.Where the...

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