jamesc
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Post by jamesc on Oct 29, 2015 15:49:45 GMT
I know this is a difficult subject and has been mentioned on other threads, but why when a loan says it is Director Guaranteed is it to quote an often used phrase 'not worth the paper its written on'. Does not the Guarantee mean that if the loan is defaulted by the company then the directors who guaranteed it are liable to pay it and if they don't pay it or offer some sort of acceptable arrangement then a Statutory Demand can be issued and if not settled then Bankruptcy can be petitioned (or another debt enforcement method )and then the director's assets could be seized, which would mean if they had say equity in a property then that would be available for creditors ? Am I missing something because when I guaranteed my daughter's loan with her bank if she defaults then I fully expect the bank to come to me looking for payment and my refusal could result in the process I have described and then my house would be at risk. Why are these any different ? As I said before perhaps I am missing something and apologies if this has already been covered in a previous thread, however I thought it was worth reviewing particularly given its a Thursday !
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TitoPuente
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Post by TitoPuente on Oct 29, 2015 16:09:27 GMT
I am no expert at all, but I can grasp that there is a breed of people that have gone through that many times. They don't give a sh*t. They consider the process you describe as part of the business. They have all their assets protected by different mechanisms that make any execution very difficult and costly for the creditor. They are not like you an me. Unfortunately it is hard to spot them with the information given by FC. Just my twopence.
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oldgrumpy
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Post by oldgrumpy on Oct 29, 2015 16:20:11 GMT
When directors guarantee to honour the loan when a company cannot pay, what it really means is they do not guarantee anything, unless forced into it.
The lawyers definition of the word "guarantee" has been detailed in another thread some time ago, and is certainly no what I understand by the word, but P2P platforms choose not to highlight that fact.
Having said that, there are directors who do honour their obligations.
Questions I would love to see answered by or on behalf of Feisty Contracts.
1. Of all defaulted loans, what percentage (by value and by number) have required resort to directors' guarantees?
2. Of all defaulted loans, what percentage of directors have failed to honour their guarantees, thus pushing FC into further action (again value, and actaul numbers).
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jamesc
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Post by jamesc on Oct 29, 2015 16:27:41 GMT
When directors guarantee to honour the loan when a company cannot pay, what it really means is they do not guarantee anything, unless forced into it. The lawyers definition of the word "guarantee" has been detailed in another thread some time ago, and is certainly no what I understand by the word, but P2P platforms choose not to highlight that fact. Having said that, there are directors who do honour their obligations. Do you by chance remember which thread that was, that defined "guarantee" ?
If that is the case do we have better security when we lend to Non limited Companies, Individuals or Partnerships where we are in essence lending directly to person's rather than a limited liability company with flaky director guarantee's ?
Is whole process of debt recovery seems to be a black hole and given its usually the difference between making a good return on ones portfolio and not much more light needs to be shone on the subject.
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arbster
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Post by arbster on Oct 29, 2015 17:01:42 GMT
When directors guarantee to honour the loan when a company cannot pay, what it really means is they do not guarantee anything, unless forced into it. The lawyers definition of the word "guarantee" has been detailed in another thread some time ago, and is certainly no what I understand by the word, but P2P platforms choose not to highlight that fact. Having said that, there are directors who do honour their obligations. Questions I would love to see answered by or on behalf of Feisty Contracts. 1. Of all defaulted loans, what percentage (by value and by number) have required resort to directors' guarantees? 2. Of all defaulted loans, what percentage of directors have failed to honour their guarantees, thus pushing FC into further action (again value, and actaul numbers). It doesn't answer your question, because only FC can, but the following analysis of the loan book is moderately interesting: Non-Guaranteed Loans | Defaulted Principal | Recoveries | Percentage Recovered | | All Asset Security | £380,392 | £162,645 | 42.76% | | No Asset Security | £1,190,057 | £203,619 | 17.11% | | Total | £1,570,449 | £366,264 | 23.32% |
| Defaulted Principal | Recoveries | Percentage Recovered | | All Asset Security | £568,239 | £94,852 | 16.69% | | No Asset Security | £14,240,834 | £2,491,388 | 17.49% | | Specific Asset Security | £184,220 | £184,220 | 100.00% | | Total | £16,563,742 | £3,136,724 | 18.48% |
So, who knew they'd lost £13.4M of lenders' money? And a recovery rate of c. 19% overall. And yes, it seems PGs are fairly worthless. EDIT: I should say this is the current position. If no more loans went bad, the continued efforts of the recoveries team should see the overall losses decrease over time.
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acky
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Post by acky on Oct 29, 2015 17:08:07 GMT
Bear in mind also that FC is lending mostly to small businesses with director/shareholders. If their business runs into trouble, they are likely to have put all their spare cash into it, mortgaged their property, etc., to try to save the business. What may look like a strong guarantee when it's signed may therefore turn into something pretty worthless. They would also have had time to organise their personal/family affairs in such a manner as to frustrate any guarantees should they be of a mind to do so (and have a half-decent lawyer). For me, a PG is very much a last resort; I will only lend to a business which looks solid on its own merits, and regrettably there are a lot on the FC platform which don't (in my opinion).
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ablender
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Post by ablender on Oct 29, 2015 17:14:40 GMT
arbster: I take it that those numbers refer to an analysis of FC loans. What dates?
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arbster
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Post by arbster on Oct 29, 2015 17:15:00 GMT
arbster: I take it that those numbers refer to an analysis of FC loans. What dates? All of them.
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Post by mrclondon on Oct 29, 2015 17:15:44 GMT
Any director who has given an unsupported PG and is aware that he could shortly be called upon to make good would be mad not to seek professional advice as to how to restructure personal assets to minimize the amount that could be payable under the guarantee. Yes, ultimately bankcrupcy is the end point but as already said that is seen as business as usual and even the short term restriction of directorships is circumvented by delegating to family members. The one case where unsupported PG's are usually honoured are where the borrower is also a director of a wholly unrelated business to the borrower (e.g. a main employer) where bankcrupty would mean resigning from the board of the unrelated business. I think I've posted this link before, but for those that haven't read it, the following pdf provides a load of guidance on the enforcement of PG's hb.betterregulation.com/external/Enforcing%20Against%20a%20Personal%20Guarantor%20-%20October%202012.pdf
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jamesc
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Post by jamesc on Oct 29, 2015 17:36:46 GMT
Any director who has given an unsupported PG and is aware that he could shortly be called upon to make good would be mad not to seek professional advice as to how to restructure personal assets to minimize the amount that could be payable under the guarantee. Yes, ultimately bankcrupcy is the end point but as already said that is seen as business as usual and even the short term restriction of directorships is circumvented by delegating to family members. The one case where unsupported PG's are usually honoured are where the borrower is also a director of a wholly unrelated business to the borrower (e.g. a main employer) where bankcrupty would mean resigning from the board of the unrelated business. There are many areas of Bankruptcy law that are there to stop a debtor from doing that, if it is seen to be an attempt to put assets out of reach of potential creditors and under such circumstances the Trustee in Bankruptcy can draw those assets back into the estate for the benefit of creditors particularly where a business fails soon after the loan is taken out any such restructuring would be invalid. Therefore I don't understand why many more of those guarantee's are not honoured ? As to my second point is there any opinion as to whether we have better security lending to unincorporated businesses ?
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Post by mrclondon on Oct 29, 2015 17:51:53 GMT
Therefore I don't understand why many more of those guarantee's are not honoured ? The real reason is there is no money. Period. The vast majority of such borrowers are director/shareholders, and they will have already pushed every spare penny (including that raised by remortgaging their primary residence) into the business to try to keep it afloat. (as per acky's post above) As to my second point is there any opinion as to whether we have better security lending to unincorporated businesses ? I'm no expert, but intuitively no. You need supported guarantees to be sure of better than the c. 20% recovery in the FC stats above (and similiar with unsupported PG's on other platforms).
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acky
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Post by acky on Oct 29, 2015 17:57:20 GMT
Fascinating analysis by arbster suggesting that guarantees are “fairly worthless”. I did the same analysis myself (same result) and also checked whether there was any bias in terms of the default dates which might distort the conclusion, but there was not. However, where there is no personal guarantee, this is likely to be because the loan is to the individual(s)/partnership, in which case the recourse is similar anyway, so perhaps we can’t draw too much conclusion from this.
The fact that % recovery overall is so low does cast considerable doubt on the value of PGs. I’ve analysed the current recovery rate by year of last normal repayment (as the best estimate of default date) - this shows: loans defaulting in 2011: 44%, 2012: 18%, 2013: 35%, 2014: 25%, 2015: 7%. Of course, recoveries may be continuing even on the 2011 defaults, so we don’t know where any of these figures will end up. The current overall rate of 19% is, of course (as arbster also points out) misleading as it’s heavily distorted by recent defaults with little time yet to make material recoveries. The above analysis might give one cause to hope that recovery rates will ultimately push up towards 50%.
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jamesc
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Post by jamesc on Oct 29, 2015 18:02:45 GMT
Do you really think its that, that there is no 'spare money' ? Even if a property has been re-mortgaged given the far stricter lending rules post 2008 there is likely still to be equity. And even though no spare money, what of money that is not spare, ( tied up in other assets ) in an enforcement situation the proceeds of said assets should be available to creditors. Or is it more a case where the loan is large there may really be not sufficient assets around to cover the loan but in the case of small loans or small outstanding's FC just don't try hard enough as there is no juice in it for them ?
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jamesc
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Post by jamesc on Oct 29, 2015 18:06:32 GMT
Also does anyone have any idea what an FC director guarantee look like is it a standard document ?
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jamesc
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Post by jamesc on Oct 29, 2015 18:08:22 GMT
Actually on that same subject does anyone know exactly what document's a borrower needs to complete (does anyone know someone who has borrowed through FC) ??
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