Those who personally guarantee repayment of corporate loans usually believe that they are taking an acceptable risk, but such a step should never be ventured without legal advice. A case on point concerned a businessman who was alleged to have underwritten a bank loan of more than $925 million.
The businessman and members of his family were majority shareholders in a large conglomerate which was said to have had assets in excess of $10 billion at the relevant time. The loan was made by a bank to one of the group’s corporate members (the borrower) after a member of its senior management executed a personal guarantee, purportedly on behalf of the businessman.
After the borrower accepted that it had defaulted on repayment of the loan, the bank launched proceedings against the businessman with a view to enforcing his personal guarantee. It sought summary judgment against him for the full outstanding amount of the loan on the basis that he had no viable defence to the claim.
The businessman for his part insisted that he had no knowledge of any guarantee having been signed on his behalf and that he had remained in ignorance until contacted by the bank. The Court, however, noted that his evidence was inexplicably incomplete, implausible and highly unlikely. It was very probable that his defence would in due course be rejected as opportunistic and false.
In refusing the summary judgment application, however, the Court was satisfied – although only just – that the businessman had a real prospect of establishing that the guarantee had been executed without his actual or apparent authority. Given the weakness of his case, the Court required him to comply with stringent conditions before he would be permitted to defend the bank’s claim.
