Banks or other financial institutions often require that independent advice be obtained from a solicitor in commercial transactions.
Most guarantors (person who guarantees a loan for another) assume that a bank will only pursue them for recovery of an outstanding debt if recovery against the borrower is not successful.
By executing a bank guarantee and indemnity, a bank or financial institution can elect whether to pursue the borrower in the first instance, or to call up the bank guarantee immediately.
This can have important ramifications in terms of protecting your life savings or assets.
If the financial institution elects to call up the guarantee, then they can pursue any assets, bank accounts or income streams that you have, putting you at risk of bankruptcy.
Bankruptcy usually lasts for three years, which imposes certain restrictions on the bankrupt – for example, you cannot be an officer of a company, and your income is capped.
The bank will also pursue their costs and interest in addition to the outstanding debt.
For example, retired parents who guarantee loans of their children may believe that their obligation to repay debts on behalf of their children are limited.
As an officer of a company, creditors may also require you to provide a personal guarantee.
We are able to peruse the bank guarantee and indemnity and advise you as to the pitfalls of signing the document should you wish to proceed.
Please contact us for more information.