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Ash
Ash, Solicitor
Category: Law
Satisfied Customers: 10916
Experience:  Solicitor with 5+ years experience
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My company is in the process of taking out a business

Resolved Question:

Hi,
My company is in the process of taking out a business loan - the conditions of this included a second charge on the properties associated with the shareholders and directors in the business.
However one of the shareholders/directors was going to use a second property that they own as their second charge - as he does not have a lot of equity in this flat, the loan company has instead requested a PG (he has chosen not to put his family house against the second charge...)
As I have a lot of equity in my property, I am aware that should the business default in anyway, I would be the most vulnerable to losing my house.
I would like someone to advice, what is the main differences between a PG and Second charge?
Also what steps should I take between myself and my shareholders to give myself some additional security (we have quite a tight shareholders agreement already in place) - however I feel that I am taking the biggest risk as if things went downhill not only could I lose my family home, but I would then need to chase the other shareholders of the business for their contributions toward the remaining debt.
Submitted: 1 year ago.
Category: Law
Expert:  Ash replied 1 year ago.
Hello my name is ***** ***** I will help you.
In terms of assets how much does the person proposed PG have?
Customer: replied 1 year ago.
Hi Alex, just to be clear you are asking me what is the value of PG being provided by the other shareholder, is that correct?
Expert:  Ash replied 1 year ago.
Yes. What sort of assets does the PG holder have compared to your equity in the property? About the same?
Customer: replied 1 year ago.
He has a second business and a family home (and a flat, which he was going to use).
in terms of the PG that the loan company is asking for from him, i would need to double check
Does this answer your question?
Expert:  Ash replied 1 year ago.
It does.
In short a second charge is only ever on your property, if there is a default they can't take anything else. The house only is at risk.
A PG on the other hand they can take EVERYTHING you own. So house, car, all assets.
That is the main difference.
Can I clarify anything for you about this today please?
Alex
Customer: replied 1 year ago.
Alex,Would that mean in your views the PG that is being offered by the sharehold is just as (and if not more) stronger then my second charge?My views are that should there be a default on the repayments, the loan company would come for my house first.. sell it and re-coup the moneys outstanding. Whereas chasing via the share holder with the PG is harder and a longer process. If theloan company did sell my house, it would be me that thereafter would have to chase the other shareholder for their contrubtions towards the loan (as per their shareholdings)...
would you agree with the above?
Expert:  Ash replied 1 year ago.
Yes a PG is far stronger, but of course depends in reality if the person has any assets. If they dont have much equity, in a lot of debt and dont have any real assets then a PG is not really worth anything. But if they own many items then its stronger.
You are all jointly liable for the debt but in reality the loan co will go for the easiest option first, which is likely to be the house.
Does that clarify?
Alex
Customer: replied 1 year ago.
Alex,I guess from your advice, i need to double check the shareholders assets however as you have mentioned that it is going to be the house that they come for first.In your option - should i consider any sort of contract to be signed between the shareholder which means that i could get access to their part of the loan repayment quicker/faster than having to fight them through the courts? (not saying that this is going to happen, as we have quite a strong partnership, but you never know)thank you for the advice.
Expert:  Ash replied 1 year ago.
I would always get a contract between shareholders which says that they are equally liable and if there is a default and they come after you 100% you can claim your share from them.
Does that help?
Alex
Ash, Solicitor
Category: Law
Satisfied Customers: 10916
Experience: Solicitor with 5+ years experience
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Customer: replied 1 year ago.
thank you Alex!

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