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Post by dualinvestor on Dec 16, 2016 19:18:57 GMT
Generally speaking a PG is worth no more than the paper it is written on. Even if the creditor was able to enforce it the guarantor can and often does take steps to become a man of straw. Although bankruptcy action can be taken where assets can be chased on the whole they are expensive, time consuming and with, often, little chance of success.
There are of course honourable exceptions but you would have to ask yourself do you expect a director of a company that can only borrow at usurios rates of interest to be one of those exceptions?
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am
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Post by am on Dec 16, 2016 20:30:48 GMT
Generally speaking a PG is worth no more than the paper it is written on. Even if the creditor was able to enforce it the guarantor can and often does take steps to become a man of straw. Although bankruptcy action can be taken where assets can be chased on the whole they are expensive, time consuming and with, often, little chance of success. There are of course honourable exceptions but you would have to ask yourself do you expect a director of a company that can only borrow at usurios rates of interest to be one of those exceptions? Also, common wisdom is that some directors try to keep failing companies afloat by putting their own money into the company, so when the company does fail they don't have any assets left. Independently, I propose that loans from directors cannot be repaid if doing so would leave the company with a negative NAV (similar to the rule that dividends can only be paid out of retained profits).
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nick
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Post by nick on Dec 18, 2016 20:01:12 GMT
Generally speaking a PG is worth no more than the paper it is written on. Even if the creditor was able to enforce it the guarantor can and often does take steps to become a man of straw. Although bankruptcy action can be taken where assets can be chased on the whole they are expensive, time consuming and with, often, little chance of success. There are of course honourable exceptions but you would have to ask yourself do you expect a director of a company that can only borrow at usurios rates of interest to be one of those exceptions? Also, common wisdom is that some directors try to keep failing companies afloat by putting their own money into the company, so when the company does fail they don't have any assets left. Independently, I propose that loans from directors cannot be repaid if doing so would leave the company with a negative NAV (similar to the rule that dividends can only be paid out of retained profits). I agree - I don't view PGs as providing any real financial security and it is a gross misrepresentation to describe a loan that is supported by a PG as being secured. In most cases, the only asset which matters is equity in a residential home which tends to more difficult to change ownership prior to bankruptcy because of joint ownership/liability issues with primary lenders etc. However, the main value of a PG is aligning the borrower's interests with the lender and committing them to the business/debt such that they cannot simply walk away from the business/debt without consequence. Whilst there is less stigma over bankruptcy, it still has a significant financial and reputational impact that will mark a bankrupt's credit record for at least 6 years post bankruptcy order. Hopefully this provides enough incentive to the lender to do all they can to repay the loan before throwing the towel in or trying to walk away from their obligations.
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Dec 18, 2016 21:53:11 GMT
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Liz
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Post by Liz on Dec 18, 2016 22:18:27 GMT
Sounds like a lawsuit waiting to happen.
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jonah
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Post by jonah on Dec 19, 2016 6:07:29 GMT
Sounds like a lawsuit waiting to happen. Or the next ppi style mis selling scandal.
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Post by Deleted on Dec 19, 2016 8:12:14 GMT
Generally speaking a PG is worth no more than the paper it is written on. Even if the creditor was able to enforce it the guarantor can and often does take steps to become a man of straw. Although bankruptcy action can be taken where assets can be chased on the whole they are expensive, time consuming and with, often, little chance of success. There are of course honourable exceptions but you would have to ask yourself do you expect a director of a company that can only borrow at usurios rates of interest to be one of those exceptions? Also, common wisdom is that some directors try to keep failing companies afloat by putting their own money into the company, so when the company does fail they don't have any assets left. Independently, I propose that loans from directors cannot be repaid if doing so would leave the company with a negative NAV (similar to the rule that dividends can only be paid out of retained profits). Interesting, I always thought Directors hung back and waited until the company went into a pre-pack then used their cash to buy up the assets on the cheap at the best value as agreed with the administrators they appointed.
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am
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Post by am on Dec 19, 2016 11:18:32 GMT
Also, common wisdom is that some directors try to keep failing companies afloat by putting their own money into the company, so when the company does fail they don't have any assets left. Independently, I propose that loans from directors cannot be repaid if doing so would leave the company with a negative NAV (similar to the rule that dividends can only be paid out of retained profits). Interesting, I always thought Directors hung back and waited until the company went into a pre-pack then used their cash to buy up the assets on the cheap at the best value as agreed with the administrators they appointed. "some directors" I'm mildly curious as to how common it is. Anyone who is sufficiently interested could look up insolvent companies on Companies House, and work out the distribution of cash flows between companies and directories in a period (a year?) before insolvency. "common wisdom" is code for "it is widely believed, but I don't have any evidence that it's true".
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Post by dualinvestor on Dec 19, 2016 11:52:59 GMT
Interesting, I always thought Directors hung back and waited until the company went into a pre-pack then used their cash to buy up the assets on the cheap at the best value as agreed with the administrators they appointed. "some directors" I'm mildly curious as to how common it is. Anyone who is sufficiently interested could look up insolvent companies on Companies House, and work out the distribution of cash flows between companies and directories in a period (a year?) before insolvency. "common wisdom" is code for "it is widely believed, but I don't have any evidence that it's true". It really does depend on what information you want, whatever it is it is unlikely to be available on Companies House. Insolvencies are, by number, usually amongst companies who qualify for the "small company exemption" in filing accounts and the information available amounts to a balance sheet up to 21 months old (longer if they have been non-compliant) and has little or no information on directors dealings with the company. The liquidation (by far the most numerous type of insolvency) statement of affairs should reveal the amount the company owes its directors at the date of liquidation but no historical data. This might be revealed at a meeting of creditors but generally they are poorly attended and little reported. "Common wisdom" is really no more than a perception based upon a few high profile cases and it is often based on supperstition rather than hard evidence, as far as I am aware there are no reliable studies to prove whether directors transactions with their companies in times of trouble are largely favourable to themselves. Personally I believe the common wisdom to be more likely correct than not. What we do know is "prosecutions*" under the various Insolvency/Company Directors Disqualification Acts for the various "offences*" of fraudulent/wrongful trading, preference, misconduct are microscopically small compared to the number of insolvencies overall, but other factors might be responsible for that such as lack of funds or evidence to pursue them. *prosecutions are possible under criminal law (but very rarely happen in insolvency) but for the purposes of this post I am referring to Insolvency Act/CDDA "prosecutions which are normally not criminal.
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ozboy
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Mine's a Large One! (Snigger, snigger .......)
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Post by ozboy on Dec 19, 2016 21:08:59 GMT
Regarding PGs, this country, as in so many areas, has completely lost its way and gone very Politically Correct, insofar as the Perpetrator now gets seemingly preferred treatment over the Victim.
These are grown people signing the PG, they know full well its implications, and it's disgraceful that the PGs aren't more water tight and are therefore so easily evaded.
In my home country, Australia, where common sense prevails and Political Correctness is considered for what it is, pure BS, PGs are far more robustly enforced, regardless of the numerous "mitigating" circumstances which these people constantly try on.
In fact, one particular P2P that I invest with back home actually VIDEOS the Borrower whilst clearly stipulating and getting the Borrower to confirm, several times over, that they are crystal clear aware of the complete implications of what they are signing!
The P2P closes about a PG like a ton of bricks, it's enforced, and they get their money.
How do you like them apples.
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