The High Court of Kenya has delivered a ruling that banks can go after guarantors in case a debtor fails to clear a loan.
The development came as a result case involving a bank and a hotel.
In the case, the hotel and another company defaulted on loans obtained from the bank in 2012 and 2015, totalling Ksh231 million, and they were later restructured under a 2017 Supplementary Term Loan Agreement.
According to reports, in the signing of the loan, the hotel’s assets were signed as security, and two of its directors were guarantors.
Later on, they signed a deed of settlement where they agreed that the hotel was to pay approximately Ksh321 million, but the hotel did not honour the agreement.
However, the defendants argued that, first, a previous court ruling about the hotel already settled this case, so it can’t be brought up again.
Secondly, they claimed that any guarantees they signed don’t count because the loan terms were changed.
However, the court ruled that the guarantees are legally binding and are enforced once the borrower fails to pay the loan, and so the bank could still go after the guarantors even if the bank tried to sell the properties to recover the debt.
