Ordered to pay $1.2 million on a guarantee of his company’s borrowings from Heartland Bank, David Burton failed in his claim that the Bank was at fault for not letting him know that fellow director Justin Paul was exceeding previously agreed overdraft limits.
There is no general rule that banks must keep guarantors apprised of their company’s solvency, Justice Andrew ruled. And Mr Burton, as a director, was expected to keep abreast of his company’s financial position.
Auckland Concrete Ltd, owned by interests associated with Mr Burton, went into liquidation insolvent in April 2023. The liquidators’ initial report quotes Mr Burton as saying underpricing on construction contracts and unbudgeted increases in material and labour costs led to the company’s failure. Mr Burton alleges former director Justin Paul was to blame. Mr Paul resigned as director in 2021, leaving Mr Burton as sole director.
Both had signed guarantees in support of Auckland Concrete’s borrowing from Heartland Bank.
The High Court was that in early 2021 Heartland was keeping a close watch on Auckland Concrete’s account. Successive emails to Mr Paul expressed concern about borrowings in excess of the company’s agreed overdraft limit. Small increases in the limit were agreed periodically, and then promptly again exceeded.
Evidence was given that Mr Burton around this time was stepping back from day-to-day management. Mr Paul was interested in buying him out.
Mr Burton claimed Heartland’s failure to keep him advised as guarantor about the increasing overdraft meant that he was personally liable for only the amount agreed when he signed the guarantee: $748,000. Mr Burton had his family trust pay this amount to Heartland Bank. Liability for further payment was disputed.
Justice Andrew dismissed Mr Burton’s claim that Heartland Bank was in breach of its duties under the Credit Contracts and Consumer Finance Act by failing to tell him of increased borrowing limits agreed with Mr Paul. The Act applies to consumer credit transactions; Auckland Concrete’s borrowings were a commercial loan.
Separately, Justice Andrew dismissed a claim that Heartland owed a general duty to Mr Burton requiring ongoing disclosure of changes to borrowing limits. The loan contract guaranteed by Mr Burton explicitly contemplated changes.
Heartland Bank v. Burton – High Court (28.08.23)
23.143