Reliance On And Loss Of Guarantees In Examinerships

It has become common place that directors give personal

guarantees for companies. As more and more companies enter into

examinership both creditors and guarantors need to be aware of

their exposure to and the limiations of these guarantees.

RELIANCE ON GUARANTEES

Examinership will not automatically prohibit a creditor from

relying on a guarantee. While guarantees cannot be enforced while

the company is in examinership, this protection falls away once the

company is no longer in examinership

Indeed, the recent Birchport Limited/Ocean Bar case shows the

willingness of a creditor to accept a scheme in an examinership

where there is a guarantee. In this case, ACC Bank accepted a

scheme whereby €378,000 of a secured debt of

€1,370,000 was treated as if it were unsecured and was

written down with the other unsecured creditors. The presence of

personal guarantees was a significant factor that encouraged ACC to

accept the scheme. ACC may enforce those guarantees in the future

to make good its loss, although of course a guarantee is be no more

valuable than the assets of the guarantor.

Guarantors should therefore be considering:

what exposure they may have in respect of guarantees,

whether they have the assets to meet that exposure; and

if there are co-guarantors, whether or not those co-guarantors

will be able to satisfy their portion of the guarantee.

LOSS OF THE GUARANTEE

In an examinership, a creditor will lose the benefit of a

guarantee in an examinership if they do not comply with certain

strict requirements.

Where the examiner gives the creditor notice of a meeting of the

creditors, the creditor must serve written notice on the guarantor

offering the guarantor certain rights. If the creditor fails to do

so, or does not do so within the tight time periods specified, then

the creditor cannot enforce the guarantee.

The notice referred to above must offer to...