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Bank Guarantees and Security Documentation

Banks frequently require their borrowers or guarantors to obtain independent legal advice on the meaning of security documents that they are required to sign, for example, in relation to the purchase of shares, borrowing of new or additional business funding, or permitting personal assets to be used as security for business lending.

Other forms of security documents are regularly required by banks including charges over property and debentures.

We have a thorough understanding of these transactions and are familiar with lending and guarantee documents. Understanding how these documents work enables us to explain their full impact to you and to make clear the full extent of your risk.

If, after receiving our advice, you choose to sign the documents, banks then ask us to confirm that we have given you full and detailed advice and that you have understood your obligations and potential exposure.

  • A guarantee is a legally binding promise that if one party to a contract fails to complete its obligations, the person giving the guarantee will do so. Typically the obligations guaranteed are debts, for example, banks often require directors of limited companies to guarantee payment of loans made to companies, and landlords often require directors of limited companies to guarantee payment of rent.

  • A legal charge is very similar to a mortgage. It is a form of security for borrowing: the property is charged with repayment if the borrower is not able to repay. This enables the lender to enforce the charge and force a sale of the charged property. In some situations a lender can appoint a receiver to manage the charged property, collect rent etc.

  • A debenture is a form of security given by a limited company. In a debenture a company charges all its property and assets with payment in the event that the company is not able to honour its commitments to a lender. In the event of default by the company the lender can enforce its security. Often this will be done by appointing administrators to the company.

  • ILA means Independent Legal Advice. Lenders who require people to sign guarantees will often require people giving guarantees to obtain independent legal advice. They require to receive a certificate signed by the independent lawyer giving confirmation that the meaning and implications of the guarantee have been fully explained to the person who has signed the guarantee. This is intended to reduce the chances of a guarantor being able to contest a claim if the lender or creditor takes action against him to enforce payment.

For further information or to speak to one of our experts, please get in touch