The bane of Irish developers and businesspeople generally is the personal guarantee – this is where a business obtains a loan for business purposes, but the bank demands, and the proprietor of the business gives, a guarantee that the loan will be repaid, and that if it is not, that the bank can pursue the proprietor for their personal property, like their home, jewelry, car or savings. It’s not unique to Ireland, but I have not come across its prevalence anyplace else. And many developers these days who are unable to repay their business loans are worried that the personal guarantees will be called in and they will lose everything. In a world where the net benefits of limited liability enterprise are readily appreciated by most, it is indeed a curiosity why we still allow personal guarantees to form such an intrinsic part of business lending in Ireland.
Whilst PGs are prevalent, they are not universal and on this side of the Border there are some developers like O’Flynn Construction’s and Tiger Developments’ Michael O’Flynn who didn’t provide PGs. He is amongst the exceptions though.
Today, we learn that NAMA has placed a British company controlled by one of Northern Ireland’s richest families, into administration. KPMG was appointed as administrator on 28th December 2012 to a company, Kendal Riverside Limited, a company with a registered address in Liverpool, and whose main asset is a shopping and outlet centre K Village, in Cumbria in north west England. The BBC today reports that the company owes NAMA “more than GBP 55m [€64m] but the K Village is now worth at most £34m [€39m]” The company is controlled by the Jennings family, which was ranked 5th wealthiest in Northern Ireland in 2010, with a fortune of over GBP 166m (€192m).
The story with the shopping centre in England that has been placed in administration is sadly predictable – “the economic climate, a fall in property prices and lack of bank funding as the reasons”
But in this case, NAMA’s recourse is to the asset and the company which controls it. The Jenningses, Thomas James, Thomas Francis, Francis, John, James and Peter didn’t give personal guarantees. The Jenningses are behind a string of commercial developments in Northern Ireland and were the one-time owners of the Cromwell private hospital in London.
Irish developers might ponder what their lives would be like today with PGs. And perhaps our regulators and legislators might ponder the net benefit to our economy if banks were restricted in demanding PGs.