“They could have destroyed my life”
The pandemic of coronavirus It was a real health disaster but also a hard economic blow for the self-employed and SMEs. Rafael Vegaformer co-owner of an Italian restaurant in Rota (Cádiz), suffered its consequences firsthand. “When we were starting the business at the end of 2018, Covid came. The business completely collapsed but we had to continue paying suppliers, employees, the rent for the premises and other bills,” he remembers. To try to mitigate the effects of this crisis, the Government promulgated on March 17, 2020 the Royal Decree-Law 8/2020where a line of State guarantees was established for a total of 100,000 million euros.
These guarantees were intended to offer a guarantee to the banks so that they could open the tap to companies and self-employed workers. Its processing was carried out through Official Credit Institute (ICO)which is why they ended up being known as loans ICO-COVID 19. According to public information provided by the Executive and the financial entities themselves, these loans for the self-employed and SMEs were 80% backed by the State, limiting the liability of private guarantors to 20% in the event of non-payment.
With this information, thousands of self-employed people and SMEs turned to this lifeline to keep their activity afloat. “The Government advertised it with great fanfare in the press, radio and television. That’s when the bank offered it to us. We had considered the closure but with this possibility that was presented to us we thought that it was reasonable to take a 20% risk“explains Vega.
The problem arose because the contract included a type of ‘ghost clause’ – the signatories were never informed of its existence nor did they have access to read that information. where it was indicated that the borrowers were responsible for 100% of the loan in case of non-payment, although without clearly and adequately informing about the additional conditions.
“The bank never told us that the guarantee we signed was 100%. They always sold us 80-20. The first time I saw the document was at the notary and I couldn’t even read it at that time. The notary read us the basics, omitting the guarantee clause,” laments this 69-year-old retired man from Madrid. Years later, at the end of 2022, Rafael Vega and his partner ended up transferring the business and then the whole shebang was uncovered: “When they told us that the guarantee was 100%, we couldn’t believe it.. I have financial training. I have been CEO of a bank and I have still been deceived. If I had had all the information I wouldn’t have done it. The risk was too high and I would have decided to close. They could have destroyed my life“.
Wrong information transmitted by institutions and banks
Recently, the Court of First Instance No. 60 of Madrid has agreed with this businessman, ruling that the State must assume 80% of an ICO-COVID loanthe remaining 20% being the responsibility of private guarantors, thus adding this ruling to similar ones that other courts have made to stop this banking abuse.
The judicial resolution, obtained by Asoban Lawyers and to which you have had access Economic Informationdeclares it proven that the guarantors signed the loan induced by the official information disseminated during the pandemic.
“The ruling recognizes an error induced by erroneous information transmitted by the institutions and the banking entity”stand out from the aforementioned office. “The court considers it proven that the plaintiffs acted in good faith, in a context of economic urgency and with official information that led them to believe that their personal liability was limited to 20% of the loan,” they add.
Furthermore, the court makes it clear that “there was no lack of diligence on the part of the businessmen and that the financial institution did not adequately inform them of the true scope of their obligation as guarantors,” in addition to not giving them a prior copy of the policy nor explain to them that “they were responsible for 100% of the amount, which violates the contractual good faith principle.”
“The solidarity bond allows you to claim 100%”
Javier Bernala lawyer from the aforementioned office, explains that the banks introduced the partners or administrators of small companies as joint guarantors, which caused a “concurrence of guarantees”creating a kind of double coverage. “These contracts included what is called joint bail clausewhich turns the small businessman into a solidarity guarantor. This allows the bank to claim 100% in the event of non-payment.“.
In this way, the financial institution had the option, in the event of a default, of claiming 80% from the State and 20% from the small businessman or directly 100% from the joint guarantor. “What the banking entities did not adequately explain is that the State guarantee was an additional guarantee for the benefit of the entity itself, and that in this situation of concurrent guarantees, the State guarantee of 80% would not limit the liability of the private guarantor/guarantor to 20%. All of this, because the State guarantee would have a subsidiary nature with respect to the rest of the guarantees/guarantees, thus making the small business owners who provided their guarantees the final and exclusive responsible for 100% of the operations subscribed under the ICO-COVID 19 guarantee line,” Bernal states.
For the firm, this decision marks a before and after in the defense of those who signed the ICO-COVID loans during the pandemic. “It is a ruling that can benefit thousands of self-employed people and businessmen who trusted the word of the State. The door is opened for many more to claim the real application of the public guarantee that was promised to them,” concludes the legal team of the Madrid firm with offices throughout the national territory.
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