Not upheld: personal guarantee validity and removal following loan restructuring complaint against Bank of Scotland plc

Decision detail

Summary

Mrs G complained that BOS was unfairly relying on a personal guarantee she provided in 2019 to pursue her for an outstanding business overdraft of approximately £12,000 following the business's liquidation in 2022. She argued that when the overdraft was restructured in 2020 and reduced to around £12,000—a level previously provided on an unsecured basis—the personal guarantee should have been removed. BOS maintained that the guarantee was never formally released and remained valid. The ombudsman found that while the overdraft balance reduced, the business's overall borrowing remained substantial through a term loan and later a Bounce Back Loan, meaning the restructuring was not a complete reset of the lending relationship. Crucially, no contemporaneous documentation existed confirming the guarantee's removal, and BOS's internal records showed no request for or approval of its removal. The ombudsman concluded it is more likely than not that the guarantee was not formally removed and therefore BOS was entitled to rely upon it, resulting in the complaint not being upheld.

The Ombudsman's reasoning

The ombudsman concluded that the personal guarantee was validly taken in 2019 to support overall borrowing up to £50,000, not merely the overdraft in isolation. The 2020 restructuring was a modification of existing borrowing rather than a complete reset, as the business's indebtedness to BOS was never fully repaid before new lending was advanced. Crucially, the release of a personal guarantee would be a significant formal step requiring contemporaneous documentation, and no such evidence exists. While Mrs G may have genuinely believed the guarantee would be removed when the overdraft reduced to £12,000, the business's overall borrowing remained substantial through the term loan and later the Bounce Back Loan, meaning total indebtedness did not return to the earlier unsecured position. The absence of any formal documentation of removal, combined with BOS's internal records showing no request or approval for removal, led the ombudsman to conclude it is more likely than not that the guarantee was not formally removed.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website