Personal guarantees appearing in contracts

[cojak]

As Wanderer has mentioned in a previous thread, agents are beginning to ask contractors to underwrite a personal guarantee against the actions of their LTD company.

It wasn't so long ago that in my RL experience I was the exception to even HAVE Professional Liability Insurance.

So why are they trying to get around professional due diligence with this guff? I would expect my insurance to pay up if I was indeed liable.

Or do they NOT want to bother with professional insurers in a case like that? Maybe they want to take your house without the mess of standing up and proving negligence to someone who knows a scam when they see one?

[Wanderer]

agents are beginning to ask contractors to underwrite a personal guarantee against the actions of their LTD company.

It's an insidious thing and extremely dangerous. If you sign one of these guarantees then they could literally take you for everything you own and bankrupt you.

Agencies also have a habit of handing over a 25 page contract to sign at the 11th hour hoping that the contractor will just sign their life away.

We need to fight back against this. Start by naming the agencies which are trying this trick so we can put pressure on them from the outset.

[speling bee]

We should be insisting on personal gurantees from agency directors in case of agency bankruptcy / inability to pay.

[cojak]

But has anyone any idea why it is happening?

I think that they are putting this in place to try and claw back money from the contractor that they lost in negotiations with the client. Losing the insurers from the equation means that they can squeeze the money more easily from the contractor without bothering to prove anything.

I bet they think that threatening a contractor with legal action will make them pay up (without expensive legal representation).

I think that it has everything to do with declining profits and nothing to do with failures of the contractor.

[cojak]

Or they might be too pigtulip thick to realise that contractors can get this kind of insurance?

I'm not sure I'd want to do business with them if this was the case...

[cojak]

An update to this chaps. Not an answer to the Why, but advice on what to do if something like this lands on your desk.

I've asked around and I've received this from a trustworthy source...

......that any clause added which asks them to indemnify the agency against something over which they have no control will be legally unenforceable - advise them to amend the indemnity clause - "xyz Ltd will indemnify agency x against any loss agency x may suffer save for any act or omission by agency x or it clients "

Actually maybe we ALL need to modify our indemnity clauses with this amendment.

[cojak]

Probably they are trying to offset business risk onto contractors if the client reneges on something.

PPI only covers if the CONTRACTOR is at fault, not if the agent or client is a scumbag.

By George I think I've got it.

EVERYBODY NEEDS THE ABOVE CLAUSE IN THEIR CONTRACTS!

The bunch of lily-livered tulipes!

[Wanderer]

Or they might be too pigtulip thick to realise that contractors can get this kind of insurance?

I'm not sure I'd want to do business with them if this was the case...

Depending on the terms and conditions of the insurance policy they may wriggle out of paying a claim. In this case they would come after the contractor's company which would have no assets. So now they ask the contractor for a personal guarantee.

Don't get me wrong - these guarantees are not at all uncommon in the business world (eg, to guarantee loan to a business) but people must think very carefully before they agree to them.

Giving a personal guarantee to underwrite an unlimited amount of risk is quite another matter though...

[jmo21]

So how many instances of this have you all heard of?

And how many of these contractors have lost the contract by refusing the clause?

I can't see QDOS or B&C letting this through a review and giving the agent a kicking in the process.

Fuss about nothing, or do we think this is a genuine concern?

[deckster]

This isn't just a recent thing, either. My first ever contract, in 1999, had a personal liability clause. The agency removed it without a murmur, but I was rather surprised and concerned that it was there in the first place.