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NSW Can Someone in Bankruptcy Become a Guarantor?

Discussion in 'Debt and Bankruptcy Law Forum' started by NeedAdvicePls, 6 June 2016.

  1. NeedAdvicePls

    NeedAdvicePls Member

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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?
     
  2. Rod

    Rod Well-Known Member

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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.
     
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  3. NeedAdvicePls

    NeedAdvicePls Member

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    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!
     
  4. NeedAdvicePls

    NeedAdvicePls Member

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    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?
     
  5. Tim W

    Tim W Lawyer
    LawTap Verified Lawyer

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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.
     
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  6. NeedAdvicePls

    NeedAdvicePls Member

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    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.
     
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