On the perils of moneylending.

Company A loaned $300,000 to Company B. Company B did not repay. Mr X was the guarantor.

Company A obtained judgment against Company B, which had no assets. Company A then sought to enforce the guarantee against Mr X.

Open and shut, right?

Not quite. Company A failed in its claim against Mr X!

The Court held that the loan agreement was a sham, as the true borrower was Mr X. In particular:
(a) the parties' true intention was for Mr X to be the borrower. Mr X was not substantially involved in Company B, which was used to disguise the personal loan as a corporate loan. Company A knew it was prohibited from lending directly to Mr X;
(b) Company A did not evaluate Company B's creditworthiness; and
(c) the loan made no commercial sense to Company B.

Since Company A had lent money to Mr X and not a corporation, it was an "unlicensed moneylender". An unlicensed moneylender cannot enforce a loan guarantee, and Company A therefore failed to recover the loan from Mr X.

If you are in the moneylending business, or have guaranteed a company loan, do have a read (or reach out for a chat). It would come as a rude (or pleasant!) shock if a guarantee turned out to be unenforceable...