By Aoife Walsh, Solicitor, Commercial Litigation and Dispute Resolution Unit
A personal guarantee is a legal undertaking by an individual (“the guarantor”) to repay another person’s loan (the principal borrower’s).
During the Celtic Tiger entering into personal guarantees became common place, particularly for property developers who sought large sums of money from the various lending institutions to fund property development and speculation. Guarantors now often find themselves the subject of legal actions taken by lenders seeking to enforce personal guarantees where the principal borrower is unable to meet repayments.
In seeking to recover sums under a personal guarantee, the lender must:-
- Secure a judgment on foot of the terms of the personal guarantee; and then
- Enforce that judgment against the assets of the guarantor.
Judgment on Foot of a Personal Guarantee
Once the principal borrower has defaulted on the payment of the loan or is no longer in a position to discharge the loan, the lender will usually issue a demand letter to the guarantor on foot of the specific terms of the personal guarantee. The demand letter will seek repayment of the outstanding sums due to it and, if provided under the guarantee, interest on such sum.
In circumstances where that sum is not paid by the guarantor the lender may institute legal proceedings against the guarantor:-
- In the District Court for sums up to €6,350.00
- In the Circuit Court for sums up to €38,092.14
- In the High Court for sums in excess of €38,092.14.
In the High Court, where the lender seeks to recover a debt or liquidated demand in money, proceedings may be heard under the summary procedure by the court with or without oral evidence. The lender may then issue and serve a Notice of Motion seeking liberty to enter final judgment against the guarantor. The guarantor may file a replying affidavit to dispute, in whole or in part, the claim made. Where a replying affidavit disputing the debt is filed by the guarantor, the Master of the High Court will decide whether a prima facie defence to the plaintiff’s claim is disclosed in such replying affidavit.
If the Master is satisfied that there is a prima facie defence to the proceedings then the matter will ultimately, through different routes, be adjourned to plenary hearing with directions as to the delivery of pleadings. Alternatively in certain circumstances a judge of the High Court may grant judgment.
If the Master does not consider that the guarantor has demonstrated a prima facie defence to the claim, then he may grant the lender liberty to enter final judgment. Such a decision of the Master may be appealed by the guarantor to the High Court.
Once the matter has been adjourned to plenary hearing it will take the route of traditional litigation which may take up to two years to obtain a hearing date. The Commercial Court deals with cases far more quickly and accordingly for claims of €1,000,000 or more lenders can apply to have the matter dealt with by the Commercial Court. An application for summary judgment can also be submitted.
Recently there has been a significant increase in cases taken by lenders concerning personal guarantees being admitted to the Commercial Court. This is primarily due to a surge in the number of loans being defaulted upon. In the case of Ringsend Property Limited v Donatex Limited and Bernard McNamara