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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25436
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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Further to my discussion earlier I would like to know more

Resolved Question:

Further to my discussion earlier I would like to know more about transferring property to bare trusts to avoid the bank attaching my assets on the basis of director's personal guarantee
Submitted: 3 years ago.
Category: Law
Expert:  Joshua replied 3 years ago.

Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

Many thanks for your further question.

Joshua :

Would I be correct to assume that the PG is for all obligations to the bank please - I presume so if it is a typical bank guarantee?

Joshua :

Is there a danger that the business assets do not cover present liabilities to the bank?

Customer:

yes. The business assets is an existing old building which currently functions as GP surgery an adjacent build site which was supposed to be devloped as a GP surgery. Unfortunately due to the Partnership issues and a few issues with the build project we havent been able to start the actual building work on site other than all the architectural and structural designs and the drawdown till date for all the professional charges has been 950,000. The expelled partner(expelled for the mismanagement of the build project had negotiated the loan term as he was the project lead at that time. Now I am the project lead, but unfortunately because of the partnership issues, the project was stalled and the planning application lapsed on 31/3/2014. There is every chance that the bank will foreclose the loan with no guarantee of the business continuing.

Customer:

the existing surety has a value between 450,000 and 600,000

Customer:

so the bank will come back to the guarantors to cover the deficit

Customer:

of the 3 partners in the LLP, one has been expelled, one has retired and I am continuing

Customer:

it is a joint and several guarantee for all the loan

Customer:

am i at a greater risk, being the continuing Partner

Customer:

hence my question how can i protect my assets

Customer:

Being the 50% owner of my assets already can my wife stop the bank procedure

Customer:

Could you please tell me how I can set up a bare trust and how does it protect my assets

Customer:

sorry, when can i get an answer

Joshua :

I am very sorry for the delay - I have been in a meeting with a client. I am just reviewing the above now.

Customer:

ok

Joshua :

How much of the loan has already been spent? The reason I ask is that presumably if building works have not commenced, much of the loan will remain unspent will it not?

Customer:

yes. 2.5 million is the loan amount and 950,00 has been spent

Customer:

this 950 k is on top of 100,000 we 3 have spent out of pocket

Joshua :

Thanks. The bank can only perhaps obviously come after the guarantors for liabilities and so if part of the loan is unspent then this would not form part of the liability they can chase. Based on what you say you have potential exposure of circa £500K depending upon the actual value of the surety in the event.

Customer:

yes

Joshua :

Each partner is jointly and severally liable and therefore this should in principal fall equally over the partners from which you should be able to calculate your potential liability.

Customer:

ok

Joshua :

In terms of your assets. Notwithstanding the following, creditors would have a claim against any asset in your sole name. In respect of joint assets, they would have a claim against 50% of such assets though if your spouse could show that she had contributed a greater degree to the same, this would reduce the potential claim to be low 50% commensurate with your share in the property.

Joshua :

It is possible for you to execute a bare trust deed in relation to any property you own. This is a simple declaration that provides that although there is no change to the legal title you declare that you hold a given property on trust for your spouse.

Customer:

ok, the family home is the asset that we both jointly own. can bank attach this

Customer:

does the bare trust keep the bank off from my assets

Joshua :

Yes a bare trust will prevent a creditor claim because it transfers the beneficial interest (i.e. the money) to a third party as specified in the deed.

Customer:

can the bare trust be executed when the property is mortgaged and owned by both of us

Joshua :

However there is a sting in the tail by virtue of the Insolvency Act. The IA provides that any transaction made at undervalue within the period of 5 years prior to any bankruptcy application can be set aside by a creditor. This means that any transfer of assets can still be attacked for a period of up to 5 years from the date of any gift by trust or otherwise.

Joshua :

Accordingly it is necessary for 5 years to have passed from the date of the bare trust or other gift before the asset can be truly safe under the IA.

Joshua :

A bare trust can be executed irrespective of any mortgage that subsists on the property

Customer:

What other options are there for me to protect my assets from the Director's personal guarantee liability

Customer:

I would like to clarify here the borrower is the LLP and we as individual partners of the LLP has given personal guarantee

Joshua :

This is an example of a simple bare trust deed:
http://www.docstoc.com/docs/26171394/Bare-Trust-Deed

Customer:

ok

Joshua :

An alternative approach would be to consider asset protection insurance. Ideally you would already have this because it may be difficult to obtain cover if you are facing potential risk of a claim by the bank already however if you can get the business back on its feet then you could look at this going forward. Such a policy can be obtained through commercial insurance brokers.

Joshua :

Another obvious approach is to transfer assets offshore to jurisdictions which are difficult to raise a claim against however this is only really possible for high net worth individuals and in the case of a house is not possible at all.

Joshua :

In order to overcome the Insolvency legislation it is necessary to have a bare trust which bearing a date of 5 years before any potential insolvency action in order to avoid a claim being made by creditors against it. Anything less than 5 years and unfortunately any potential asset is vulnerable to a claim if it has been transferred to a third party at less than market value.

Customer:

Whom should I contact to create a bare trust, and who qualifies as a witness to bare trust?

Joshua :

Any solicitor can prepare a bare trust for you. There is no requirement to have a solicitor involved but trusts require skill to draft although as you will see from the above example a bare trust is pretty straightforward.

Joshua :

A witness must be not a relative and over 18.

Joshua :

There is no special requirement beyond that.

Customer:

My wife is in no way connected with the LLP. Hence she has not received any legal advice nor has the bank informed her regarding the implications of the director's personal guarantee that I have given on the business mortgage.

Customer:

Does that give her a reason to stop the bank from exercising the personal guarantee clause

Joshua :

No but it does prevent the bank from claiming her share of the property. In addition she may seek to make further claims under matrimonial homes rights to impede any attempt to force a sale of the property potentiall

Joshua :

*potentially

Joshua :

If the bank does call in the loan and seeks claims against the partners for the shortfall then your wife will be able to seek to establish her interest in the property beyond 50%. A family law solicitor can assist her in such a claim if this is necessary as they are experienced in establishing such claims in a divorce proceedings context so the skills transfer

Joshua :

Is there anything above I can clarify for you any further?

Customer:

I find from your profile that you are an expert in bankruptcy law, could you please tell me whether there is a room for me to negotiate with the bank to avoid the foreclosure of the loan, or phased repayment of the outstanding liability

Joshua :

Do you feel there is any potential for the business at this stage? If not is it a result of negligent mismanagement on the part of the resigned partner?

Customer:

unfortunately yes it is a result of negligent mismanagement of both the partners.

Customer:

I have been trying to salvage but I dont know whether it is beyond any means

Customer:

There is a clause in the LLP, that a partner who has retired from the LLP should be indemnified from all losses, guarantees etc. Can I choose to resign from the LLP

Customer:

the partner who has retired from the General partnership hasnt retired from the LLP

Customer:

which has borrowed the loan

Joshua :

Thanks. If there were any possibility in respect of getting the business back on its feet it may be sensible to consider the appointment of a local insolvency practitioner to look at a possible period of administration but if you consider it out the question then this would not assist. You can always negotiate with a lender however unless a lender can see a realistic prospect of a business plan for a source of revenue they will be difficult to deal with. You business would likely qualify for use of the Financial Ombudsman Service however if you are dissatisfied with the banks conduct as matters progress and could refer any complaint to the ombudsman for an independent determination.

Joshua :

There is also a question of a claim against one or more partners that may be guilty of negligent mismanagement if you can show genuine negligence and a failure in fiduciary duty to the partnership which as resulted in loss.

Customer:

yes that is something i am considering

Joshua :

This may be a difficult and expensive claim to pursue but it is something to consider if you believe there is sufficient evidence to demonstrate the same.

Customer:

yes

Customer:

how long can I keep a company under CVA

Joshua :

5 years

Customer:

ok..that's quite promising!

Joshua :

Is there anything else I can help you with?

Customer:

could you briefly tell me how CVA works

Joshua :

A CVA must be agreed by all the directors of the LLP. You must obtain one through a licenced insolvency practitioner of which there are many. Creditors that own 75% or more of the company debt (which I assume would be the bank) must agree to a CVA and where this is the case a repayment schedule will be worked out and at the end of the period of the CVA any outstanding debt is wiped out. Personal guarantees can also be renegotiated before the commencement of a CVA. They are not suitable for all situations but if there is a means of repayment then they can be considered.

Joshua :

I am about to leave for an appointment in about 10 minutes. Is there anything else I can help you with before I go?

Customer:

thanks for the help

Joshua :

A pleasure. If I can assist any further as the situation develops please do no hesitate to let me know. You are welcome to return to this thread if you have follow up questions.

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