Recently we acted for a small business owner whose premises were mortgaged to a bank. Unsurprisingly the business suffered during the recession. The bank had agreed to a reduced payment and this payment had been met for some years. The bank then sold the loan to a fund who, again unsurprisingly, sought full payments which was not possible.
In the end the borrower agreed that he would sell the property and contribute a reasonable amount towards the shortfall. The fund sought much more than the borrower could afford and no deal could be done.
In those circumstances, we advised as follows:
• The business would relocate to new premises at an affordable rent
• The business would be incorporated and the shareholding placed into the name of the borrower’s family meaning that the borrower no longer has any ownership of the business
• No further contribution would be offered to the fund
The borrower moved and the fund will now, through a receiver, sell the premises and recoup less than what was offered to them.
The business is performing well and any wealth that builds up will be protected from the fund. The borrower has no other assets that can be attacked by the fund.
The upshot of the scenario outlined here is that there are times when the funds will behave unreasonably and indeed uncommercially. These are bully boy tactics that, without proper advice, can cause great difficulty for small business owners. But there are ways to circumvent the bully’s behaviour and professional advice is very important here.
In the end, because the funds are commercial, they will see sense and do the deals that need to be done.
Indeed, many of them are already doing those deals and people are moving on.