Director personal guarantee for non payment of fee

Do you include this in your L of E?

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Have you come across this before?

Client signed a L of E which stated the below - do you include this in yours?

Director(s) Personal Guarantee
By signing these Terms of Engagement and Standard Terms of Business should the company for any reason fail to pay our feesthen you as Director/s of the company shall be personally liable for any outstanding account as though our invoice wasaddressed to you personally. The company and all Directors who have signed these Terms of Engagement and Standard Termsof Business shall be jointly and severally liable for any outstanding account not paid by the company.

Replies (9)

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By FactChecker
23rd Feb 2024 19:43

Can't speak for others ... but I've seen that, or something similar, in many LoEs over the years (including ones that I've signed as a director of 'the client').

Thanks (2)
David Winch
By David Winch
23rd Feb 2024 21:28

My personal view is that it is doubtful whether a personal guarantee which appears only in a letter of engagement addressed to the company is going to be enforceable against a director (even one who signs the letter of engagement on behalf of the company).
But it is a legal point and I am a mere accountant.

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Replying to davidwinch:
paddle steamer
26th Feb 2024 12:35

I concur.

Banks insist on legal representation re guarantee letters with good reasons, so that they are subsequently enforceable.

Consult a solicitor.

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By spilly
23rd Feb 2024 22:24

Yep, always put this in. Have pointed it out to a couple of clients who were somewhat tardy in paying us and it did result in our fees being paid.
Our wording is slightly different - son is a contract lawyer so he tightened it up a bit for us.

Thanks (1)
Replying to spilly:
By FactChecker
23rd Feb 2024 23:46

Be interesting to know what he 'tightened up a bit' ... and to what.

IANAL but the phrase quoted by OP seems to me to leave too much to vagueness:
"should the company for any reason fail to pay our fees then you as Director/s of the company shall be personally liable for any outstanding account as though our invoice was addressed to you personally."
- 'for any reason' ... presumably not including formal dispute between parties?
- 'fail to pay our fees' ... but no timescale or degree of overdue indicated?
- 'you as Director/s' ... suggests that the liability relates to being a Director (which it doesn't), and that liability would die immediately if Director resigned?

I've no problem with the intent - but if it is to be legally relied upon (not just used to 'encourage' prompt payment), then it feels a little woolly in its current state.

Thanks (2)
By Mr_awol
23rd Feb 2024 23:20

Not in the LofE but as a separate document.

I agree with David that a clause such as this buried in standard terms and signed ‘on behalf of the company’ might not stand up (although like him, I’m not a lawyer, so happy for anyone dual qualified to correct me).

Even separate and signed completely personally, I’m not convinced it’s fully enforceable but I’d say it stands a better chance and even if not completely watertight it does help to ‘encourage’ those who can pay, but who are trying not to pay, to get their chequebooks out

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By zebaa
24th Feb 2024 09:31

As others have said I too suspect enforcing it may be problematic. In the real world you need a judgement then enforcement action, both of which take time, effort & cost that could probably be better spent not throwing good money after bad. Sometimes, when in business, even accountancy, you just have to take a hit.

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Flag of the Soviet Union
By thevaliant
26th Feb 2024 11:54

Should you put it in?
Can't hurt.

Is it legally enforceable? Highly unlikely. Several reasons:

1. The director is signing something slipped into one contract. It should be a seperate document.
2. No consideration has been offered by the director, nor the accounting firm. No consideration - no contract.
3. It would therefore need to be a deed - which needs witnessing.
4. As noted, there are all sorts of issues around liability even if all the above weren't fatal (they are, each of the above three is completely fatal in its own right). Why should the director be liable? Are they shareholders? What if they're not? what if they resign? What if they die? What if the Soviet Union invades and takes over the country? Far too much wooliness.

It'd never stand up against a determined defence.

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Replying to thevaliant:
paddle steamer
26th Feb 2024 14:10

I defeat 2 by executing the contract in Scotland under Scots Law, consideration, whae needs it?

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