The Dangers of Personal Guarantees - Nicholson Gordon Law

7 January 2014
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Category: News
7 January 2014, Comments: 0

National Merchant Buying Society Ltd v Andrew Bellamy and Steven Mallett [2013] EWCA Civ 452


A recent case emphasises the dangers of signing personal guarantees, and in particular that a director can be held liable under a personal guarantee many years after having left the company, and many years after having resigned as a director.


Despite the fact that the director had resigned from the company in 2006, he was found by the Court of Appeal to be liable under a personal guarantee given to the Company’s creditors in respect of sums due by the company.  He sought to escape liability under the rule in Holme v Brinskill (1878) 3 QBD 495 arguing that the guarantee had been given on the basis of the contract between the creditors and the Company which at the time he left had a credit limit of £200,000.  He argued that as he had not consented or agreed to the significant increase in the credit limit that took place after he had left, his liability should be confined to that limit.


The judgement turned upon a straightforward interpretation of the guarantee.   If the guarantee was a guarantee that he would perform obligations relating to a specific contract, then that indeed would be the limit of the guarantee obligations.  The variation or amendment of such a contract in a substantial way would prejudice the guarantor and  in accordance with the rule in Holme v Brunskill the guarantee would be released.  This would be because the guarantee would expose the guarantor to liabilities to which he had never agreed.  However in this case the guarantee related to a contemplated series of dealings between the lender and the debtor Company, and providing that course of dealings remained within the scope that was contemplated at the time the guarantee was entered into, any specific variations to the agreement would not affect the continuing nature of liability under the guarantee.   A standard and typical example of such a guarantee would be a guarantee of a Company’s indebtedness with the bank, under an “all monies” owed clause.


The guarantee was enforceable; although the credit limit had changed it remained within the scope of business dealings that was contemplated at the time the guarantee was entered into.  It was an enforceable “all monies” clause and could not be avoided merely by reference to the specific knowledge, or lack of knowledge of the guarantor relating to the dealings between the Company and the creditor.

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