In this case study, we examine a situation involving a personal guarantee claim in the hospitality industry which as we all know has been one of the hardest-hit areas in recent years.
Case Background:
Mr S an experienced head chef started his own restaurant in a small but busy town in 2021. As is common for restaurants Mr S needed commercial kitchen equipment and restaurant fixtures and fittings which he sourced and purchased from three different companies using asset finance allowing him to pay monthly rather than having to buy the equipment outright from the off. As a condition of this, the three companies required Mr S to sign a personal guarantee for each of them, making him personally liable for the debt if his business failed to repay the loans. The initial loan amount totalled £250,000 spread across the three guarantees.
Initially, the restaurant got off to a brilliant start and Mr S was able to service the three loans and make a reasonable living from his business. Despite the initial success, eventually the cost-of-living crisis and a personal illness that forced him to hire a temporary replacement for himself at a considerable expense, the business faltered and was unable to make the required loan payments, eventually defaulting on the loan. Mr S decided that liquidation was the only way forward.
Claim:
Having worked in the industry for over two decades, Mr S had lots of contacts and acquaintances in the hospitality sector and informed the asset finance companies that he wished to sell the equipment himself in an attempt to be able to pay back most of what he still owed them however they referred him to the terms and conditions that he had signed which clearly stated that they would remove the equipment and sell it themselves. It was taken and went through a local auction house making just a fraction of its original value. All three companies then sought to enforce the personal guarantees with the total outstanding sum being approximately £105,000.
Insolvency:
Mr S did not have £105,000 to settle his debt to the three companies. He was referred to us by his liquidator, an office of one of the biggest Insolvency Practices in the country.
Mr S had a free initial consultation with Andrew Read where they discussed the situation and the potential consequences of not engaging with the three companies to try and settle the matter. Mr S decided to proceed with our services as he realised that he was not going to be able to sort this himself and he did not want to be made bankrupt.
What we did:
Mr S wanted to come to an agreement with his creditors before they initiated legal proceedings against him, Personal Guarantees UK immediately informed them that we were acting on his behalf and that they would receive a settlement offer shortly.
We carried out an in-depth review of Mr S’ assets, income and liabilities showing he had no assets that could be realised. He was living in rented accommodation, drove a car valued at less than £2000, savings of approximately £450 and no surplus income from his wages after his monthly costs. This resulted in us being able to present to the three companies that they would achieve a return of £0 if they took legal action as it would bankrupt our client.
In the meantime, an immediate family member offered to give Mr S £40,000 (A sum he would have inherited in future years from them) to allow him an attempt to settle his debt. We put together a proposal that offered each company a pro rata split of the funds available meaning they would get 38p in the £1 return. Given that Mr S was currently employed and still had no surplus income and that was unlikely to change, and that legal action would result in no return, all three companies agreed to accept our proposal.
Conclusion:
This case highlights the importance of understanding the implications of signing a personal guarantee. Business owners should carefully evaluate the risks and seek advice before agreeing to such obligations. It also highlights how seeking professional help to negotiate a claim against you can lead to a far more favourable outcome than trying to handle it alone.
Quote from Mr S: “Thankfully I was referred to you by my Insolvency Practitioner. I thought they’d repossess the equipment and that would be it done. I didn’t know what to do when I realised I’d still owe so much money. I wouldn’t have had a clue how to sort it out, all the legal language they use is confusing and I thought I should just go bankrupt. Andrew explained things clearly, was calm and just told me the facts. It helped me get to grips with what was going on. I can’t thank you enough for the help and would definitely recommend you to anyone going through a similar thing.
