Security

Security

In many cases, the managing director and major shareholder’s financing bank requires that he or she personally contacts the bank for repayment of his or her limited liability company’s financing. This is known as a suretyship. Such a suretyship must meet a number of formal requirements, otherwise it is not valid. For example, in some cases the managing director and major shareholder’s spouse must also sign for it. In certain cases the bank should notify the managing director and major shareholder (and sometimes his or her spouse or civil partner) of the risks. Banks occasionally make formal errors when it comes to this and sometimes a director can be held personally liable.

Such a security can also indicate risks for the private property of the director’s spouse. If the director and his or her partner are married or have a civil partnership with joint ownership of assets, the spouse is just as much at risk of being addressed by the bank as the director him or herself, at the time when the company can no longer pay its debts.

Even if there is no joint ownership of assets, there can still be risks for the partner. Often, a security is secured by a mortgage on the private residence. The bank then has a mortgage which does not just cover the property debt, but also other liabilities to the bank, such as the liability resulting from the security. If the director did not marry with joint ownership of assets, but does have joint property with his or her partner, the bank can still seek redress from the property.

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