Recent law changes affect the enforcement of guarantees against directors and their relatives.

In a recent example a creditor wanted to pursue a guarantor for recovery of a debtor company’s debts. The guarantor also happened to be the company’s director.

The company in question had utilised the Voluntary Administration regime which is intended to be a relatively short-term measure that freezes a company’s financial position while the Administrator and the creditors determine the company’s future.

As creditors are unable to enforce a guarantee of a company’s liabilities given by a director, spouse, or relative of a director, without leave of the Court while a company is in Administration, the creditor in this instance was unable to utilise the guarantee while the company remained in its status of administration.   

It was decided that the company may be able to continue, a Deed of Company Arrangement was entered into by the company and its creditors for payment of monies owing. This prevented creditors from pursuing the company for outstanding debt’s.  Following execution of the Deed of Company Arrangement the company came out of Voluntary Administration.

However, the creditor was not wanting to pursue the company for recovery of monies owing, but rather sought to enforce their guarantee. Now that the company was no longer classed as being in its status of Administration the creditor could pursue the guarantor successfully.