BE AWARE: Serious Consequences of Personal Guarantee and Guarantees Acknowledgment Act Certificate
To schedule an appointment, contact our law firm at 403-400-4092 or Chris@NeufeldLegal.com
There are serious consequences for a guarantor when the primary borrower defaults on their financial obligations to the lender, such that it is important that when you are the guarantor, who has been asked to provide a personal guarantee and a Guarantees Acknowledgement Act Certificate, which requires that you receive independent legal advice, you understand what those potential consequences might be. For whereas a corporate business owner (shareholder, officer, director) might understand that this is a necessity for attaining financing for the corporate business, when the guarantor is not the business owner, there is a tendency to underestimate the adverse consequences of providing a personal guarantee (as well as not getting appropriate assurances, including both the regular provision of relevant financial information and immediate notification of any matter of potential concern).
If the primary debtor defaults, the lender can come after you as the guarantor for the full amount of the indebtedness (including outstanding principal, interest and legal fees), unless there is a pre-specified limit as to your financial exposure. As such, the lender is legally permitted to pursue you alone and collect from you alone, such that you could be necessitated to separately pursue the primary debtor and/or other guarantors for guarantors (which you may not realize upon), while the lender had collected the entire amount from yourself. The financial and interpersonal implications of collecting the full amount of the primary debtor's indebtedness (or even a partial amount) can be devastating on multiple fronts [see our discussion on risks on default].
Because of these serious financial risks (as well as interpersonal risks) to a guarantor should the primary debtor default, it is important that you properly consider the implications of your agreeing to provide a personal guarantee (especially where you are not a principal of the corporate business that is seeking financing or you are providing a personal guarantee for someone outside your immediate family). And it is for that very reason that the Alberta legislature made it a legal requirement that personal guarantees subject to the Guarantees Acknowledgment Act, require that guarantors obtain independent legal advice in furtherance of the completion of a Guarantees Acknowledgment Act Certificate, such that you should take serious consideration as to the lawyer's advice.
Furthermore, if you are not a business owner and/or you lack access to the business' financials and have no assurance as to your immediate notification of any matter of potential concern, it would be to your advantage to obtain written assurances with respect to the corporate business' financials and immediate notification of any matter of potential concern, which should be addressed in consultation with your own lawyer. Receiving such a level of transparency, can provide a level of forewarning as to the potential problems for the primary borrower to service its financial obligations, such that you might consider viable options to address this potential problem, as it could have negative repurcussions for yourself if it is allowed to worsen and you are caught offguard.
When you are in need of legal representation with respect to the provision of a personal guarantee for another party's indebtedness (i.e., bank loan, debt financing, commercial lease, car loan, student loan), including the proper completion of a Guarantees Acknowledgment Act Certificate, contact Calgary personal guarantee lawyer Christopher Neufeld by email at Chris@NeufeldLegal.com or by telephone at 403-400-4092 to schedule an appointment (including mobile evening legal services).