Anna Kalašnikovová on the provision of collateral for a business loan by an individual

When negotiating their financing, business entities are often confronted with the requirement from creditors that the ultimate owners of these companies provide collateral or guarantee for their financing. This raises the question of whether the collateral provided by the ultimate owner, as an individual, is entered into from the position of a businessperson or a consumer, and whether consumer protection rules apply to them.

First and foremost, it is necessary to assess whether the company owner conducts their activities in relation to their company as a businessperson or merely manages their own assets. The fact that a person does not act as a businessperson, however, does not necessarily mean they will be protected as an ordinary consumer.

The conditions under which the owner or another individual is protected when providing collateral for a company's financed loan are elaborated by both the jurisprudence of the European Court of Justice (ECJ) and the Supreme Court. The Supreme Court, with reference to the ECJ jurisprudence, does not protect as a consumer the person providing collateral for a business commitment. However, in recent years, the ECJ jurisprudence has added another criterion, namely the assessment of whether such a person provided collateral for a business commitment, for example, due to their functional connection with the company or because of their capital influence in the company – or whether they acted for purely private purposes.

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