Borrowers must honour personal guarantees on loans, says judge
BORROWERS who gave personal guarantees to secure bank loans cannot renege on them by claiming they did not mean what they said.
Mr Justice Peter Kelly, the head of Ireland's fast-track Commercial Court, made the remarks yesterday when dealing with two multi-million euro claims arising from the provision of bank loans backed by personal guarantees.
The practice of seeking personal guarantees -- described as a "comfort blanket" for lenders as they tie individual borrowers and company directors who sign them to guarantee their debts of their firms -- was widespread during the boom in Ireland, unlike Britain where their use is hugely limited.
The value of a personal guarantee is directly related to the net worth of an individual, but as people's worth has plummeted in tandem with property and other asset values, many now find themselves personally exposed to claims they cannot meet.
Mr Justice Kelly was speaking yesterday in the Commercial Court when he granted judgment orders for €3.2m to ACC Bank against two brothers arising from personal guarantees.
Martin O'Connor, Corona House, Newpark, Calry Road, Sligo, and James O'Connor, with an address in England, had admitted the money was owed. However, the brothers had sought time to try and agree refinancing arrangements with Allied Irish Banks aimed at progressing their proposed development on a site in Sligo town.
Martin O'Connor told the court they were still attempting to reach an arrangement with AIB. He agreed the money was owed but, he added, the loans were made in 2007 and 2008 on the basis that the planned development would happen. It was never intended that the money would have to be repaid so quickly, within two years, and ACC's demand for payment came because "the Tiger had crashed".
Mr Justice Kelly said that although ACC was entitled at this stage to secure judgment and he would enter judgment in the sum sought, plus interest, they could continue with their efforts with AIB, the judge said.
ACC, the court was told, would seek to accommodate the men in their efforts to refinance.
A lot of people appeared to have signed such personal guarantees over loans to companies but they could not now say the guarantees did not mean what they said, the judge said.
In another case yesterday arising from personal guarantees, drinks giant Diageo Ireland is seeking €3.2m summary judgment orders against John Galvin, Lough Mahon House, Rochestown, Cork. Judgment is sought over guarantees given by him in May 2009, as a director of Galvins Wholesale Ltd, over debts of that company in an effort to ensure Diageo continued to provide credit to it.
Galvins Wholesale was under court protection but that examinership failed and a liquidator was appointed in November 2009. Diageo claims Mr Galvin is liable under his guarantee for €3.2m debts of the company and demanded payment of that amount last December.
Gary McCarthy, for Mr Galvin, said his client needed time to address the claims raised which, counsel argued, should be for about half the amount claimed.
Mr Justice Kelly adjourned the matter to March 4.