Business advice guarantor

Shelly19

Good morning I am hoping for some advice on my current position. My son and a family member bought a bar 3 weeks before the first lock down
It is a limited company and myself and my partner are guarantors. The premises is leased and was substantially refurbished throughout the lockdown whilst employees were furloughed. The rent has been paid in full to date. The business is failing and I have been persuaded by my family member to top up the business each month out of our own funds-he is doing the same-whilst he tries to sell the business. This agreement was made 6 months ago and the business has still not been put on the market. We cannot afford to continue with this arrange.emt. Any advice on this matter about how to proceed and what-if anything-we can do about being guarantors would be gratefully received. Thank you.

MattMattMattUK

Shelly19 said:

Good morning I am hoping for some advice on my current position. My son and a family member bought a bar 3 weeks before the first lock down
It is a limited company and myself and my partner are guarantors.

What are you actually guarantor for, the rent, business debts?

Shelly19 said:

The premises is leased and was substantially refurbished throughout the lockdown whilst employees were furloughed. The rent has been paid in full to date. The business is failing and I have been persuaded by my family member to top up the business each month out of our own funds-he is doing the same-whilst he tries to sell the business. This agreement was made 6 months ago and the business has still not been put on the market. We cannot afford to continue with this arrange.emt.

What is your relationship to the business, are you a director, shareholder, are you also an employee of the business? Or are you just in the unfortunate position of being a guarantor with no direct connection to it's operations? When you say you have been "topping up" the business, what form has this taken? Are these loans, director's loans, shareholders injecting funds or just randomly sending money to the businesses bank account?

Shelly19 said:

Any advice on this matter about how to proceed and what-if anything-we can do about being guarantors would be gratefully received. Thank you.

Get a proper accountant involved immediately, find out the state of the business, if the business is solvent and where the money is actually going. Also look to find out why it is not currently profitable, Covid restrictions are gone, hospitality is getting busy again and is continuing to get busier, why is this business not viable? Also regardless of it being on the market or not, why would someone be willing to buy a business that is continually loss making and from the sound of it has considerable debts?

Ultimately you need to look at how much you are liable for as a guarantor, but the reality is this is going to cost you money one way or another. 

silvercar

One of the key benefits of forming a limited company is that it’s liabilities are limited, so protecting the directors and others. If you act as a guarantor for such a company it is partly negating the value of being limited. Was this explained to you? Did you get legal advice before signing up as a guarantor? 

Thrugelmir

What are you guarantors for?  

Jeremy535897

I would suspect that the OP and partner have guaranteed that the rent will be paid in the event of a default by the limited company. The first question to ask is how long the lease is for. Merely selling the company does not, of itself, remove the guarantee. Nor does assigning the lease. This is potentially a very difficult situation. OP needs to take advice urgently.

compfan100

silvercar said:

One of the key benefits of forming a limited company is that it’s liabilities are limited, so protecting the directors and others. If you act as a guarantor for such a company it is partly negating the value of being limited. Was this explained to you? Did you get legal advice before signing up as a guarantor? 

Is this better than being a sole trader RE limited company

RandomUserID

compfan100 said:

silvercar said:

One of the key benefits of forming a limited company is that it’s liabilities are limited, so protecting the directors and others. If you act as a guarantor for such a company it is partly negating the value of being limited. Was this explained to you? Did you get legal advice before signing up as a guarantor? 

Is this better than being a sole trader RE limited company

Yes, if you're not a numpty and sign away your rights as a shareholder.

silvercar

compfan100 said:

silvercar said:

One of the key benefits of forming a limited company is that it’s liabilities are limited, so protecting the directors and others. If you act as a guarantor for such a company it is partly negating the value of being limited. Was this explained to you? Did you get legal advice before signing up as a guarantor? 

Is this better than being a sole trader RE limited company

Yes, as limited means no personal liability- other than what you have signed for. Don’t sign as a guarantor and you have no liability. All the risks are within the company.

in the case of OP,  their liability is restricted to whatever guarantees they have given rather than being open ended.

Jeremy535897

Unfortunately it is almost unheard of for a landlord to let commercial premises to a small limited company without personal guarantees. Banks will also normally seek them if lending.

MattMattMattUK

Jeremy535897 said:

Unfortunately it is almost unheard of for a landlord to let commercial premises to a small limited company without personal guarantees. Banks will also normally seek them if lending.

The solution is normally to pay up front. When my business first took on premises I had to pay three months rent as an advance (on top of the three months deposit), but that removed the need for any personal guarantees, though I understand that not all landlords might agree to that.

[Deleted User]

@Shelly19 what has been decided, can you give more insight ?