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

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

certify or guarantee that Guarantor

Ltd will not have to suffer any loss

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.

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

Lower Baggot Street,

Dublin 2.

Tel: 612987.

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