“A journey of a thousand miles begins with a single step” (Laozi) Many of us dream of starting up ourRead More
“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
In other words, argued the directors, nothing was owed by the debtor company, so they were liable for nothing.
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.