personal guarantee

the_gronows

Background.
This may be long but please bear with me
Member of family worked for an owner managed business. MD set up a new business with capital injection from some other shareholders. MD's wife owned majority of shares. 65% I think. MD did not inject any capital.
Remainder of shares were split between other directors and my family member who was given 2%. Company had 3 directors and 1 employee. My family member wasn't a director.

Company burned through initial capital injection in purchasing equipment from overseas and initial set up cost. At one point my family member was owed 6 weeks pay.

Company then went to bank for a business loan but bank wanted "directors " to invest and to give personal guarantees before releasing funds.

At this point one of the directors got cold feet and left leaving 2 directors and 1 employee. Bank insisted on invetsment and guarantee before releasing funds.

At the time it looked like a good buisness and family member was pesuaded heavily to agree to invest £15k (this was to be a loan to company and they did not have this is savings so they borrowed on a personal loan) and to sign up to guarantee for £13k.

Family member was not offered or given any independent legal advice, the company's solicitors just went through the main key facts document. It was a case of if you don't sign up nobody gets paid and the business folds you lose your job.

Bank had various conditions which company was supposed to comply with in respect of submitting regular monthly minutes of board meetings managemnet accounts etc. At that time my family member was in control of accounts so was happy this could be complied with.

Family member signed up.

Pretty quickly after relations soured family member was sacked without notice and without paymnet of outstanding wages. At the time they left the company was just about solvent and was becoming profitable. Bank loan was being paid off and company has no overdraft.

Family member went to a employment tribunal this took about 1 year to get done as company dragged their feet but they were awarded their unpaid notice, unpaid wages and unpaid holiday pay. Company repaid loan for a few months but then defaulted.

Family member had to continue to repay personal loan to bank, pay bills from savings / overdraft etc. Found a temp contract a few weeks later but hasnt found a permanent job since.

MD turned out to be a spend thrift with a history of living beyond his and his companies means and sucked company dry. Company was eventually wound up, family member was unsecured creditor so got nothing.

It turned out that the bank hadnt been complying with the terms of their agreement as company defaulted on their loan, went into overdraft, didnt sent management accounts etc. So they could have wound company up when family member left and his guarantee would have been much lower possibly even zero as company was solvent then.

Anyway fast forward

Bank are now persuing family member for the guarantee.

Fmaily member has been crippled financially repaying personal loan and deosnt want to find another £13k. Has little savings but has a house he owns with wife.

I think bank acted totally unethically here.

Family member was faced with sacrifcing almost 2 months pay and their job going forward if they didnt sign up.
Investment required was same as others even thorugh shareholding were not equal.
Independent legal advice was not given.
Bank did not ensure company adhered to condtions of loan agreemnt etc.

Can family member avoid this ?