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Review Your SQE 1 Practice Records

Examination Timing: 00H02M23S

David Smith and his friend, Alex Turner, are the directors of a private limited company, DS Innovations Ltd. In the course of business, they secure an overdraft facility on the company's bank account. Alex offers a personal guarantee to the bank for this overdraft. Unfortunately, DS Innovations Ltd goes into liquidation. 

Which of the following statements best describes against whom the bank can now claim?

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When a company goes into liquidation, creditors typically do not have direct claims against directors or members. Instead, claims are made against the company's assets through the liquidator. However, if a director or an individual provides a personal guarantee for a company's debt, the creditor can claim directly against the guarantor to the extent of the guarantee. In this case, Alex Turner provided a personal guarantee for the company's overdraft. Therefore, the bank can claim directly against Alex to the extent of his guarantee. The company's members can only be pursued to the extent of their unpaid shares by the liquidator, not directly by the bank. 

Key Point: In liquidation, creditors cannot usually claim directly against directors or members. However, personal guarantees provided by individuals allow creditors to claim directly against those guarantors.

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