NSW Can Someone in Bankruptcy Become a Guarantor?

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NeedAdvicePls

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5 June 2016
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To (hopefully) clarify:

• Person A had a commercial rental lease. This was signed by Person A in their capacity as director of Company 1.

• Person A was later made bankrupt by a creditor for outstanding debts and Company 1 was liquidated. For whatever reason - the real estate agency was not made aware of the bankruptcy.

• Person A now registers a new company (Company 2) to Person B and advises the real estate agency that Company 1 has been liquidated voluntarily as a means to write off a few creditors.

• The real estate agency creates a new lease (based on the previous one) however it is executed by Person B in their capacity as director of Company 2.

• Person A signs as guarantor on the new lease for Company 2.

• Company 2 is involved in a volatile industry which could turn sour at any time. If Person B falls behind on rent payments to the point where the realtor pursues legal action against Person A in their capacity as guarantor, what will happen when they realise Person A was bankrupt at the time of signing the new contract?
 

Rod

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Hmm, interesting question and I'm also curious about the answer.

The law is that if person A by himself, or jointly with another person, attempt to obtain goods, services on credit, or credit and don't tell the other party, then person A is committing an offence punishable by up to 3 years jail.

Not sure if the guarantee legally falls into the category of obtaining credit.
 

NeedAdvicePls

Member
5 June 2016
4
0
1
Hmm, interesting question and I'm also curious about the answer.

The law is that if person A by himself, or jointly with another person, attempt to obtain goods, services on credit, or credit and don't tell the other party, then person A is committing an offence punishable by up to 3 years jail.

Not sure if the guarantee legally falls into the category of obtaining credit.

Person A hasn't asked for credit - but they have guaranteed that rent will be paid. Not sure if this counts as obtaining goods/services. Hope someone can clarify!
 

NeedAdvicePls

Member
5 June 2016
4
0
1
To (hopefully) clarify:

• Person A had a commercial lease. This was signed by Person A in their capacity as director of Company 1.

• Person A was later made bankrupt by a creditor for outstanding debts and Company 1 was liquidated. For whatever reason - the real estate agency was not made aware of the bankruptcy.

• Person A now registers a new company (Company 2) to Person B and advises the real estate agency that Company 1 has been liquidated voluntarily as a means to write off a few creditors.

• The real estate agency creates a new lease (based on the previous one) however it is executed by Person B in their capacity as director of Company 2.

• Person A signs as guarantor on the new lease for Company 2.

• Company 2 is involved in a volatile industry which could turn sour at any time. If Person B falls behind on rent payments to the point where the realtor pursues legal action against Person A in their capacity as guarantor, what will happen when they realise Person A was bankrupt at the time of signing the new contract?
 

Tim W

Lawyer
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28 April 2014
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One other aspect to consider is that the lender
may not be prepared to accept the bankrupt as a guarantor.
As a general thing, lenders like guarantors to have the capacity to pay
if called upon to do so.
 

NeedAdvicePls

Member
5 June 2016
4
0
1
One other aspect to consider is that the lender
may not be prepared to accept the bankrupt as a guarantor.
As a general thing, lenders like guarantors to have the capacity to pay
if called upon to do so.

Thank you for your reply.

Due to the pre-existing relationship that Person A has with the real estate agency, a credit check was not done the second time around.

The second lease was signed and executed late last year.