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
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...