The Gazette 1991

GAZETTE

i SEPTEMBER 1991

it seems that the guarantee is voidable. Similarly, where the guarantee has been called in, it would also seem that restitution is possible in that it is likely that Big Bank pic can pay the money back making the guarantee voidable. However, it must be said that in so saying that restitution is possible in these circumstances, we are taking for granted that we are talking about "restitution" being possible in the sense of it being possible on foot of a court order. It should be noted that an alter- native analysis of the "restitution exception" could view the money or other asset which is the subject matter of the arrangement or transaction as the loan given by Big Bank pic to Borrowings Ltd. However, it is thought that it is the guarantee itself which is the "money or other asset" which is in fact the subject matter of the arrangement or transaction, and not the loan. (b) The Indemnity The indemnity exception would seem to be a pre-emptive form of relief for Big Bank pic canvassed, if at all, prior to drawdown of the loan. Essentially, the indemnity which is required to be given is to be in accordance with S.38 (2) (b), which provides that the persons referred to below should: "(jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction." The persons referred to are those in S.38 (2) itself are are: • the director or shadow director of Guarantor Ltd, • Borrowings Ltd (the person so connected), • any other director of Guar- antor Ltd who authorised the transaction or arrange- ment. However, the usefulness of this exception is dubious. In the first place, one must ask what exactly does "has been in- demnified" actually mean? The word " i n d emn i f y" has been defined 6 as to ". . . . secure (person from or against loss); exempt from penalty (for actions); compensate. As such it can be seen that

"indemnified" can mean either to certify or guarantee that Guarantor Ltd will not have to suffer any loss or that Guarantor Ltd has actually been compensated or reimbursed for any loss or damage suffered. If the latter is the case, it seems to mean that before the second limb of S.38 (1) (a) can have the effect of meaning that Guarantor Ltd cannot avoid the guarantee, Guarantor Ltd, must have actually been compensated for the loss or damage i.e. the amount of the guarantee. In the second place, there must exist serious public policy con- siderations for a bank to require such an indemnity, and indeed furthermore, a pre-emptive reliance on the indemnity exception could possibly obviate the availability of the actual notice defence dis- cussed next. (c) Bona Fide for Value Without Actual Notice. The third situation where Guarantor Ltd cannot avoid the guarantee is where to do so would affect any rights acquired bona fide for value and without actual notice of the contravention of S.31, other than the person for whom the guarantee was made. Again this requires analysis. In the first place, not everyone can claim to have rights acquired bona fide for value and be without actual notice i.e. the person for whom the transaction or arrange- ment was made. S.25 (6) (c) provides that such is "made for a person" where: " i n the case of a guarantee of security, it is entered into or provided in connection with a loan or quasi- loan made to him or a credit transaction made for him." So it seems that Borrowings Ltd cannot rely on this exception, even if it fulfils the other requirements of the subsection. However, on this analysis, Big Bank pic would seem not to be ipso facto prevented from relying on S.38 (1) (b). In the second place, while prima facie, it might seem that Big Bank pic (and their solicitors) could adopt a blinkered approach to investi- gating whether or not there was a contravention of S.31 so as to be without actual notice, the reality is that it seems almost inevitable that the facts which will indicate whe t her the guarantee will

be in breach of S.31 will come to their notice through standard routine enquiries which every solicitor acting for a bank will make in any event. Thus, a solicitor acting for Big Bank pic will have to try to ascertain whether or not there is a commercial benefit to Guarantor Ltd in giving a guarantee for Borrowings Ltd there being a reluctance to rely upon Regulation 6 of S.I. 163/1973. 7 Such an inquiry will give him actual notice of the shareholdings of both companies, and the Memorandum and Articles of Association will give him actual notice of the directors of the company. Indeed, prior to any . . . a solicitor acting for Big Bank pic will hava to try to ascertain whether or not there is a commercial benefit to Guarantor Ltd in giving a guarantee lending institution agreeing to give a loan to a company, it would be most unusual were it not, itself, to seek information about those who control that company. Information required by a lending institution to determine the suitability of the company applying for the loan, would, it seems, put it on notice of the possibility of a contravention of S.31. While all of these factors, per se, will not necessarily disclose the likelihood of a contravention of S.31, the solicitor for Big Bank pic is walking a very fine line, and of course, if he is deemed to have actual notice, such will be imputed to Big Bank pic. As with Part III in general, any analysis of this subsection is fraught with diffi- culty, and must remain in the realm of the speculative until the subject of judicial interpretation.

Psychological Scrviccs for Neuropsyche Assessment, Compensation Claims, Child Abuse and Family Law Contact: Clinical Psychology Consultants 42 Lower Baggot Street, Dublin 2. Tel: 612987.

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