Guarantee Trap + Sham Bankruptcy

The counterparty company proposed a partnership and asked the client to personally provide a joint and several guarantee for an inter-company transaction.

The contract was drafted by the counterparty's in-house legal team, who pressured the client to sign the same day. The client signed without having it reviewed by independent counsel.

The client discovered the contract contained clauses extremely unfavorable to them, including a waiver of the right to demand exhaustion of remedies against the primary debtor first.

The counterparty company ran into financial difficulty and began falling behind on payments.

The counterparty company suddenly filed for bankruptcy. The client's investigation found that substantial assets had been transferred to related parties before the filing.

Creditors sued the client personally under the guarantee agreement, and the court froze the client's bank accounts and real estate.

While defending against the lawsuit, the client gathered evidence of the counterparty's sham bankruptcy and asset transfers.

The case is still in progress. The client is carrying enormous debt while working to prove the counterparty's fraud.