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

Decision detail

Summary

Mr G, a director of a limited company, complained that BOS was unfairly relying on a personal guarantee he provided in 2019 to pursue an outstanding business overdraft balance of approximately £12,000 following the company's liquidation in 2022. Mr G argued that when the overdraft was restructured in 2020 and reduced to around £12,000, it returned to a level previously provided on an unsecured basis and he understood the guarantee would no longer apply. BOS maintained that the guarantee was never formally released and remained valid. The ombudsman found that although the overdraft balance reduced, the business's total indebtedness remained significant through other borrowing facilities, and there was no contemporaneous documentation evidencing the guarantee's formal removal. Accordingly, the ombudsman concluded it was fair and reasonable for BOS to rely on the guarantee and did not uphold the complaint.

The Ombudsman's reasoning

The ombudsman concluded that the personal guarantee was validly taken in 2019 to support borrowing up to £50,000 and covered the overall exposure to BOS rather than being tied to the overdraft alone. Although the overdraft balance reduced to £12,000 in 2020, the business's total indebtedness did not return to the earlier unsecured level because it continued to have significant borrowing through the business loan and later the Bounce Back Loan. The ombudsman found that releasing a personal guarantee would be a significant formal step requiring clear documentation and contemporaneous records. Given the absence of any evidence that the guarantee was formally released, and BOS's internal records showing no request or approval for removal, the ombudsman concluded it was more likely than not that the guarantee was never formally removed and therefore remains valid.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website