KVV Inc
  • About Us
    • Meet The Team
      • Staff Photos
    • KVV Masters
    • Blog
  • Registration Process
    • I Am a Buyer
    • I Am a Seller
    • I Am An Agent
  • KVV Training Centre
  • KVV TV
  • KVV Cares
  • Contact Us
    • Privacy Policy
    • PAIA Manual
    • POPI Policy
  • +27 12 006 5171

Business Rescue: Are Your Suretyships Enforceable? A R5.5m Lesson for Directors and Creditors

Home / Blog / Business / Business Rescue: Are Your Suretyships Enforceable? A R5.5m Lesson for Directors and Creditors
July 24, 2019
Business

“Some people use one-half their ingenuity to get into debt, and the other half to avoid paying it” (George Prentice, newspaper editor and author)

You are owed a lot of money by a company that goes into business rescue. The business rescue plan provides for creditors like you to accept a dividend of only a few cents in the Rand in settlement of your debt. You stand to lose heavily.

But perhaps there’s hope yet – a director with assets has signed personal suretyship. Can the director now say “sorry, you adopted the business rescue plan so your claim no longer exists”, and refuse to pay you?

The directors’ defence

  • A creditor was owed R6.5m for the lease of mining equipment to a company which was placed under business rescue. In terms of a business rescue plan approved by the creditor it was paid only a portion of its claim, losing its right to claim anything further from the debtor company.
  • The two directors of the debtor had signed a deed of suretyship in terms of which they stood as co-sureties and co-principal debtors with their company for all amounts owing.
  • The creditor duly sued the directors for its shortfall of some R5.5m The directors’ defence was that they were not liable because –
    • The suretyship entitled the creditor to go after them only for “any sum which after the receipt of such dividend/s or payment/s may remain owing by the Debtor.” (Own underlining).
    • Nothing remained owing by the debtor which had been released from its debt by the business rescue plan.

      In other words, argued the directors, nothing was owed by the debtor company, so they were liable for nothing.

  • Not so, said the Court. That “would render the terms of the deed of suretyship nonsensical and militates against the very reason for a creditor obtaining security against the indebtedness of a debtor i.e. to mitigate the risk of the debtor being unable to fulfil its obligations due to inter alia business rescue.” The business rescue plan made no provision for the position of sureties and therefore “the liability of the sureties is in my view preserved.  And while the debt may not be enforceable against [the company], it does not detract from the obligation of the sureties to pay in the circumstances of this case.” In other words, a surety’s liability is unaffected by the business rescue unless the plan itself makes specific provision for the situation of sureties.
  • Bottom line – the directors must personally cough up the R5.5m (plus interest and costs).

Lessons for directors and creditors

The outcome here could have been very different had the wording of either this particular suretyship or the business rescue plan supported the directors’ defence.

Creditors – when securing your claim with a director’s suretyship check that you are fully covered in any form of business failure situation.  And ensure that a business rescue plan specifically provides that its adoption does not release sureties.

Directors – when you sign personal surety understand exactly what you are letting yourself in for. And if you are unlucky enough to find yourself in the middle of a business rescue, actively manage your personal liability danger – particularly when it comes to the wording of the rescue plan.

© LawDotNews

Share
Previous Post
May 2019 - A Note from our Directors
Next Post
Airbnb Owners and Buyers – Should You Be Worried About the New Regulations?
Recent Posts
  • KVV | A Note from our Director
  • Buying and Selling Property: Who Pays What Costs?
  • Bodies Corporate: Forcing Access to Units, and Round Robin Resolutions
  • Verbal Agreements – Not Much Good, But Lots of Bad and Ugly
  • Trusts on Divorce: Are You Stuck with an Ex-Spouse as Trustee?
Contact Info

Ground Floor, Block D, Jigsaw Park 7 Einstein Road Highveld Techno Park, Centurion
Phone: +27 87 351 2022
Fax: (012) 655-1053

Get Directions
Archive
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • July 2021
  • April 2021
  • January 2021
  • December 2020
  • November 2020
  • September 2020
  • August 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
Categories
  • Bank And Financial
  • Business
  • Contract
  • Corporate
  • Criminal Law
  • Debt
  • Debt recovery
  • Delict and Civil Claims
  • Delit / Civil Claims
  • Employment and Labour Law
  • Employment Law
  • Family Law
  • General Interest
  • Information Technology Law / Cyber Law
  • Insolvency
  • Insolvency / liquidation
  • KVV News
  • Litigation
  • News
  • Property
  • Property Law
  • Road Traffic
  • Tax
  • Trusts
  • Uncategorized
  • Website Of The Month
  • Wills and Estates
Pages
  • About Us
  • Blog
  • Blog Archive
  • Blog Classic
  • Contact Us
  • Cost Calculator
  • How We Work
  • I Am a Buyer
  • I Am a Seller
  • I Am An Agent
  • KVV Inc – Your Property Partner
  • KVV TV
  • Master Lounge
  • Meat the Team
  • Meet The Team
  • Registration Process
  • Shortcodes
  • Staff Photos
  • Testimonials
  • Training Centre

Designed by eMSDigital Group © 2021. All Rights Reserved

  • About Us
  • Registration Process
  • KVV Training Centre
  • KVV TV
  • KVV Cares
  • Contact Us
  • About Us
    • Meet The Team
      • Staff Photos
    • KVV Masters
    • Blog
  • Registration Process
    • I Am a Buyer
    • I Am a Seller
    • I Am An Agent
  • KVV Training Centre
  • KVV TV
  • KVV Cares
  • Contact Us
    • Privacy Policy
    • PAIA Manual
    • POPI Policy