Guarantee and Indemnity Claims
Companies, company directors and shareholders are often required to give guarantees and indemnities to creditors in relation to the liabilities and debts of a company, or as part of corporate transactions (for example, a sale of shares).
A guarantee is distinct from an indemnity, albeit the lines can become blurred. A guarantee comprises a promise to meet another party’s obligations - usually an obligation to make payment - in the event of their default. An indemnity comprises an agreement to pay for a particular cost and/or loss incurred by a third party regardless of fault.
To speak to a solicitor about guarantee and indemnity claims, contact us by calling 0345 872 6666, or fill in our online enquiry form to request a call back.
How JMW Can Help
JMW can advise on demands pursuant to both guarantees and indemnities and assist in pursuing, defending and resolving any disputes as to the validity of claims. We can also help negotiate time to pay and secure reduced settlements.
If a creditor makes a demand on the company, director or shareholder for payment of the company’s debts or otherwise, this can cause them significant financial hardship. The director’s personal assets, including the family home - even if it is jointly owned - may be at risk.
The team at JMW regularly advises individuals and companies on their rights and options in relation to guarantees and indemnities. We also represent parties in relation to proceedings brought by creditors in relation to disputed claims.
FAQs About Guarantee and Indemnity Claims
- What is the difference between guarantee and indemnity?
A guarantee is an agreement to meet someone else’s agreement to complete an action - for example, make a payment. An indemnity is an agreement to pay for a cost or reimburse a loss incurred by someone else, even in circumstances where the original agreement has been challenged or is in doubt.
There are also certain requirements that must be met in order for a guarantee to be valid. A guarantee must be made in writing or evidenced in writing, and it must be signed by the guarantor. There are no criteria for an indemnity to meet in order for it to be valid; however, it must meet the requirements for a valid contract.
Entering into both types of transactions brings with it serious financial risk, so it is important to be aware of all the implications.
- What happens if a company becomes insolvent before debts are paid?
The insolvency of the company does not release the guarantor’s obligations under the guarantee. However, if the company enters into a company voluntary arrangement (CVA), the terms of the arrangement may release the guarantor from liabilities under the guarantee.
Directors who have given guarantees should seek legal advice as soon as a company faces financial difficulty.
Payments made by the company before it goes into administration or liquidation, including paying off a creditor to whom the guarantor has given a guarantee, may subsequently be found to be a preference that can be set aside.
- Can I file for bankruptcy if I am unable to pay the company debt?
Should a company become insolvent, and an individual guarantor is unable to pay the debt, the creditor may be able to commence bankruptcy proceedings against the individual. Bankruptcy should be avoided whenever possible.
- What happens if a company is jointly owned?
When two or more company directors/shareholders sign a joint and several guarantees to the same creditor (for instance, a bank), the creditor may be able to claim the whole amount from just one of the directors/shareholders, as opposed to all of the guarantors.
Before giving a guarantee, individuals should seek independent legal advice in order to understand the extent of their liability and the potential far-reaching consequences for them. For instance, a guarantor should:
Seek to negotiate a ‘cap’ on the guarantee in terms of amount and time
Seek to ensure the guarantee is in relation to a specific loan, as opposed to all future borrowings
Avoid securing the loan by way of a charge over a family home
A director must also take into consideration their duties as a director and any conflict of interest that may arise by signing a guarantee.
Talk to Us
If you need to speak to a solicitor in relation to guarantee and indemnity claims, contact JMW today by calling 0345 872 6666. Alternatively, fill in our online enquiry form and we will get back to you.
