Importance of getting legal advice before signing a personal guarantee

Client A ran a retail business. Client A signed personal guarantees to suppliers which allowed suppliers to lodge caveats over their property as security for the provision of lines of credit the client used to purchase stock.

The company went into liquidation. The creditors did not actively pursue Client A for recovery of funds owing. Client A assumed the company debts were dissolved with the company liquidation. Client A also declared bankruptcy.

Several years later Client A went to sell their property, only to find that there were caveats registered over the property which restricted settlement being able to take place.

Client A came to Wollerman Shacklock and instructed our firm that the company went into liquidation years prior and requested assistance to have the caveats registered over the property be removed.

Our office contacted the caveators requesting evidence of their grounds for the caveats. The caveators provided evidence that Client A had signed personal guarantees to secure the credit provided to the company which allowed them to register caveats over the property, and those lines of credits remained unpaid.

Luckily, we were able to negotiate with the creditors for Client A to pay a reduced amount to settle the unpaid company debts in exchange for the removal of the caveats in order for settlement of their property to proceed.

Client A remembered signing the personal guarantees but did not understand what that meant and that they would be personally liable years later after the company went into liquidation. They assumed liquidation and personal bankruptcy sorted all that out!