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Personal Guarantees from Limited Companies

Does anyone ask for personal guarantees for fees from limited companies?

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Hi all,

After suffering in the past from unpaid fees from limited companies that have dissolved/liquidated etc., I just wondered if any accountants asked for personal guarantees for their fees from the directors, especially when taking onboard a new limited company as a client?

Banks etc. will generally ask for a directors personal guarantee on loans or overdrafts, is there any reason why we should not do the same?

Its not something I have ever looked into in the past or even thought of doing before, so I just wondered if I am behind the times and this is something everyone else already does, or is it something we should all be considering?

Andrew

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By Mr_awol
09th Oct 2018 12:02

We do.

Technically it's almost certainly not enforceable, but it's better than nothing and directors have paid up in the past when a copy of the guarantee has been sent to them.

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to Mr_awol
09th Oct 2018 12:05

Thanks for that, do you know of anywhere with a sample template?

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By Mr_awol
to AndrewB2499
09th Oct 2018 15:09

Ours wouldn't help but it is basically a letter from director offering to pay if co wont/cant, with a forced line trying to imply consideration (so as to give it some chance of being binding)

For a 'proper' guarantee deed see https://www.legalandgeneral.com/library/general-insurance/miscelleneous/...

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09th Oct 2018 12:52

We don't, though I'm not sure why. It would only be appropriate for small limited companies anyway.

It's very hard to get these guarantees right. Just slipping them into an engagement letter will not work (though it is a stick that you could use, but if they called your bluff you'd not be able to enforce it).

I'd also advise ANY client to NOT sign one anyway. Whilst its rare, if a client director/shareholder DID sign one, and it was enforceable, they wouldn't THEN be able to sell their business until this guarantee was waived (or you were dumped as accountants) as that guarantee is for the company. If they sold their company to A N Other, and A N Other retained your services, five years later A N Other don't pay and you go after old director.....?

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to thevaliant
09th Oct 2018 13:15

I take your point, but I think in the case of a sale of the business I would be happy to cancel the old guarantee and get a new one from the new directors/shareholders so long as they had paid their fees up to the point of sale.

Even if the new directors/shareholders were not prepared to sign such an agreement, it would then be up to me as to whether or not to carry on the engagement.

As a reputable accountant I cannot see any situation where I would refuse to cancel the existing guarantee in the case of a genuine business sale and all fees were paid up to date. Surely only someone of low morals would chase after the old business owners for fees owed for work done for the new owners AFTER the sale of the business?

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09th Oct 2018 14:21

"I, the undersigned, being a director or member, involved in the daily administration of the applicant named above, jointly and severally guarantee the performance of all the applicant’s financial obligations to A**** Limited."

I am in industry, but I can tell you that having the above simple sentence along side the signature box on our trade credit account form has resulted in recovering many thousands of pounds from directors of failed limited companies; including many who initially defended the claim and said the guarantee was "unenforceable".

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to dejaneiro2005
09th Oct 2018 14:39

As a genuine question, have you ever enforced it. In front of a judge? Ideally at the Court of Appeal or higher?

Because there are multiple reasons why such a sentence *should* be completely unenforceable.

Not saying it isn't a great stick to beat a client with, but it shouldn't be enforceable.

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to thevaliant
09th Oct 2018 14:48

Most are paid up well before this stage, but it has been enforced many times in court (though I acknowledge only in the County Court).

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By Mr_awol
to thevaliant
09th Oct 2018 15:37

thevaliant wrote:

Because there are multiple reasons why such a sentence *should* be completely unenforceable.

Not saying it isn't a great stick to beat a client with, but it shouldn't be enforceable.

It isn't enforceable. Any debtor with a vague knowledge of their rights could overturn it easily. Thing is, as we have found, that doesn't often happen. The court order is normally uncontested so the non binding agreement stands.

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By tom123
to dejaneiro2005
09th Oct 2018 15:14

Conversely, and again from the business perspective, I would never sign such a guarantee for what I could view as a 'commodity' product.

No harm in trying, though.

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