What we do for bank guarantees
A bank guarantee is not a trivial document. It is a contract by which you undertake to pay the debt of a third party if that party defaults. When the bank turns against you, the sums involved are often considerable - and the means of defence numerous but technical.
Our firm intervenes at every stage: upstream to secure a commitment, in defence when the bank calls on the guarantor for payment, in negotiation to obtain a reduction or deferment. We deal with banking litigation on a daily basis, which enables us to quickly identify any flaws in a surety deed and any shortcomings on the part of the credit institution.
Proportionality of guarantees - Article 2300 of the Civil Code
«If the guarantee given by a natural person to a professional creditor was, at the time it was signed, manifestly disproportionate to the income and assets of the guarantor, it shall be reduced to the amount to which the guarantor could have committed himself at that date». This text, resulting from the reform of 1 January 2022, is the first lever to be examined. If your commitment exceeded your financial capacity on the day you signed, the amount claimed by the bank may be reduced.
Company director as guarantor
This is the most common case. The bank makes a business loan, line of credit or overdraft authorisation conditional on your personal undertaking as joint and several guarantor. When the company defaults, you are sued out of your personal assets - sometimes for amounts far in excess of what you could bear at the time of signing.
The reform of surety bonds that came into force on 1 January 2022 has radically changed the applicable regime. For guarantees signed after this date, the professional creditor must warn you if the principal debtor's commitment is unsuited to his financial capabilities (article 2299 of the Civil Code). The distinction between an «informed» guarantor and a «lay» guarantor, which allowed banks to evade this obligation, has disappeared.
Our firm handles
- An analysis of the proportionality of your commitment on the day you sign (assets and liabilities, income, other current guarantees).
- Verification that the bank has complied with its annual information obligation (article 2302 of the Civil Code) - failure to do so will result in forfeiture of all interest due.
- Checking the formality of the deed (compulsory wording, amount in words and figures, express waiver of the benefits of discussion and division)
- Evidence of a breach of the duty to warn
- Out-of-court negotiations with the credit institution or legal representation before the Commercial Court or the Court of First Instance
Annual information - Article 2302 of the Civil Code
Before 31 March each year, the bank must inform any individual guarantor of the outstanding principal, interest and ancillary charges. If the bank fails to do so, it loses the right to claim interest and penalties that have accrued since it last provided the correct information. This is a powerful defence: in practice, many banks are unable to prove that they have sent this information.
Guarantee for a mortgage
You have guaranteed the mortgage of a close friend, spouse or partner. The borrower has stopped repaying, and the bank is claiming the outstanding capital, interest and charges from you. Your commitment may amount to several hundred thousand euros.
Le credit law imposes specific obligations on the bank towards the guarantor of a property loan. It had to check that your commitment was not manifestly disproportionate to your income and assets. It had to warn you if the loan was unsuited to the borrower's financial capabilities. It had to inform you each year of the amount outstanding and the duration of your commitment.
Each breach opens up a defence. Disproportionality allows you to obtain a reduction in the amount claimed. Failure to provide annual information results in forfeiture of interest. Failure to warn entitles the borrower to forfeiture of interest in proportion to the loss suffered.
Our areas of defence
- Challenging the disproportionality of the guarantee (article 2300 of the Civil Code)
- Evidence of the bank's failure to warn (article 2299 of the Civil Code)
- Failure to provide annual information and forfeiture of interest
- Checking the validity of the writ of execution and the statement of claim
- Raising of defences by the principal debtor against the bank (article 2298 of the Civil Code)
Surety bonds and insolvency proceedings
The guaranteed company is placed in protection, receivership or compulsory liquidation. The guarantor remains exposed. The individual stay of proceedings that protects the debtor does not extend to the guarantor, except in the case of a safeguard or reorganisation plan approved by the court.
The relationship between guarantees and insolvency proceedings is one of the most technical disputes in banking law. The questions are numerous: has the bank declared its claim within the deadline? Can the guarantor claim that the principal debt has been extinguished? Does the reorganisation plan release the guarantor? Has the bank lost any securities from which the guarantor could have benefited by subrogation?
This last point is a lever that is often underestimated. Article 2314 of the Civil Code provides that the guarantor is discharged when subrogation in the creditor's rights can no longer take place through the creditor's fault. If the bank has failed to renew a mortgage, maintain a pledge or register a lien, the guarantor may be discharged to the extent of the loss suffered.
Our firm handles
- Analysis of the impact of the insolvency proceedings on your guarantee commitment
- Verification of the bank's claim declaration and its impact on the guarantee
- Loss of the benefit of subrogation (article 2314 of the Civil Code)
- Defence against the bank's claims during and after the insolvency proceedings
- Negotiating settlement agreements with credit institutions
What has changed with the reform of surety bonds
The Ordinance of 15 September 2021 radically reformed the law governing surety bonds, with effect from 1 January 2022. Depending on the date on which you sign your deed, the applicable regime will differ in a number of key respects.
| Theme | Before 1 January 2022 | From 1 January 2022 |
|---|---|---|
| Formalism | Handwritten sacramental statement to be reproduced word for word (art. L.341-2 and L.341-3 C. conso) | Free but restricted wording: guarantor status, amount in words and figures (art. 2297 C. civ.) |
| Disproportion | The creditor cannot take advantage of the guarantee (total loss) + double test on the day of signature and then on the day of the call. | Reduction to the bearable amount, single test on the day of signature (art. 2300 C. civ.) |
| Warning | Obligation under case law, distinction between informed and uninformed guarantors | Legal obligation, all natural person guarantors, proportional forfeiture (art. 2299 C. civ.) |
| Enforceable exceptions | Only the exceptions inherent in the debt | All defences, including those personal to the debtor (art. 2298 C. civ.) |
| Subrogation | Valid clause to the contrary | Clause to the contrary deemed unwritten (art. 2314 C. civ.) |
Determining the applicable regime is the first thing to do. It determines the entire defence strategy.
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