trigroupadmin No Comments

The concept of limited liability is, of course, almost always rather illusory for smaller companies in particular. Invariably a bank will require personal guarantees from the directors as well as a charge over the company’s own assets. Directors and others should remember that lenders ask for guarantees for a reason, and that if a guarantee is given it should be assumed that payment will have to be made.

There is a widespread – but wrongly-held – view that the guarantors will only be pursued for payment under their guarantees once the company’s own assets have been realised and there is a clear shortfall. The recent case of White v Davenham Trust Limited confirmed that it’s up to the creditor to choose for itself how to enforce a debt.

Mr White had given a guarantee to Davenham to support borrowing by his company. Davenham also had the benefit of a legal charge over property owned by the company. The company went into administration and Davenham demanded payment from Mr White under the guarantee. He failed to pay and Davenham duly served a statutory demand as a first step towards making him bankrupt.

White tried to have the statutory demand set aside, arguing that it was unjust for Davenham to pursue him when they still held the security over the company’s assets. The Court of Appeal sided with Davenham, holding that the existence of the security was not a reason which would prevent them proceeding against the guarantor.

The upshot is that it is clear that, where a guarantee liability is not disputed, neither the Court nor the guarantor can dictate the creditor’s strategy for recovering the debt. There are, of course, good reasons from a creditor’s perspective for pursuing the guarantor from the outset, not only for the creditor to get its money back as quickly as possible, but also to avoid any problems arising from guarantors putting, or trying to put, their assets out of reach.