M was an executive director of the company. He had signed a personal guarantee for Company debts to the limit of £650k plus interest plus costs. The business was facing difficulties but was confident they could trade through. The directors approached the bank with an action plan and the bank manager said they would support the plan, which required no additional funding from the bank, providing M would sign a personal guarantee.
On M signing the personal guarantee, the bank placed the company into administration under the Insolvency Act the day after the personal guarantee was signed.
M was not liable for the debt. It is clear that he was induced into signing the personal guarantee by the bank manager on the basis of the bank’s ongoing support to trade out of the situation, but the real intention was to better protect the bank’s position knowing the administrator was to be appointed by them.
Although this looks damning on the bank, this situation may not have been instigated by the bank per se and could have occurred as a result of the bank manger’s independent action in a desperate attempt to protect his personal reputation within the organisation.