Businesspeople who personally guarantee corporate loans always act with hope in their hearts. However, as one case showed, they should be under no illusions as to the potentially dire consequences of doing so and should never take such a step without first obtaining expert legal advice.
In three tranches, two German financial institutions advanced the equivalent of about £150 million to an Indian company so that it could purchase equipment for use in a construction project. The company's chairman and managing director signed a deed by which he personally guaranteed repayment of those loans and indemnified the institutions against any losses arising were the company to default.
After the company entered into an insolvency process in India – which was an event of default under the loan agreements – the institutions swiftly took steps to recover their money. No funds being forthcoming from the company, they took action against the guarantor with a view to enforcing his obligations.
Following a hearing in London, in which the guarantor, an Indian national, played no active part, the High Court found that he had no realistic prospect of successfully defending the institutions' claim. Summary judgment was entered against him in the full amount claimed by the institutions, including contractual interest and the costs of the enforcement process.
He had been properly served with all relevant documents and the sums concerned had been validly demanded from him. Any challenge to the Court's jurisdiction to deal with the matter was bound to fail in that the guarantees were subject to a binding and exclusive English jurisdiction agreement. He had unconditionally and irrevocably guaranteed the loans and an argument that the Indian insolvency process had by some means discharged him of his liability was without merit.
For help or guidance on this or other related insolvency law matters, please speak to Leanne Schneider-Rose l.schneider-rose@sydneymitchell.co.uk 0808 166 8827
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