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Commercial disputes: Personal guarantees

Facing a dispute is an unwanted reality for many organisations. Along with the potential for reputational and financial damage, commercial disputes are a major distraction from other profitable activities.

At recent events, we’ve been explaining how organisations can take precautions to avoid disputes. One of the key takeaways was the importance of guarantees when conducting business with other parties.

The session was interactive – we used a live polling system to anonymously collect views on a range of issues surrounding avoiding commercial disputes and managing risks.

Surprisingly, on the topic of guarantees, there was a split awareness of their role and reliability when it comes to avoiding disputes, as seen in the figures below.

 

Scenario:

Bad News Ltd enters into a contract with Optimistic Ltd. Optimistic Ltd’s account opening form includes a sentence stating that it is a personal guarantee. This was signed by one of Bad News Ltd’s directors. Bad News Ltd goes bust! Can Optimistic Ltd rely on the guarantee?

 

Commercial Disputes - Personal Guarantees

 

The correct answer was in fact MAYBE.

 

Ros Keen, Associate and commercial litigation lawyer at Actons explains: “There are many arguments that can be raised regarding the validity of personal guarantees. This is particularly the case when the guarantee is not set out in a separate document. The facts and the circumstances of each case need to be analysed to see if the guarantee can be challenged.”

If you were unable to attend the sessions and are interested in learning how your organisation can benefit from ensuring you have the right documents in place to avoid commercial disputes or would like any further information or assistance, please get in touch with our Dispute Resolution team today. We can arrange to deliver the session to you at a more suitable time, date and location.

Posted on July 10, 2019

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