How to end a suretyship

[Basment Dweller]

My mother stood suritey on a property development involving our family estate. The suritey was used to raise a development loan with the bank. The development was a success and we are now transfering our units into a shelf company and closing off the original development company. The proceeds of the development sales covered the development loan with lots of profits.

How do we ensure that the suritey ends and is no longer binding?

[Justloadit]

With great difficulty!

The banks do not return surety's for some unknown reason, however, you probably will need to go in personally to the branch where the surety was signed/handed over, and contact the branch manager and insist on the retraction of the surety. Many of the older surety's had unlimited times, and could be used as collateral under a broad range of services and branches of the same bank. The recently promulgated NCA laws prevents banks from practicing this on new surety's.

You may need to go in a few times to eventually get a letter from the bank in which they state that the surety has been cancelled and accepted by the bank. Only some one at upper management level of the branch has the authority to sign the letter of acceptance of the cancellation of the surety. Guard this letter well in the case something in the future arises with the surety being used as collateral.

Depending on the surety, simply closing the company may not be sufficient to cancel the surety, as it may have a broad description for it's use.

[Basment Dweller]

Gaawwwd these banks are painful...just read the suritey doc now, something about the surity being irrevocable and continuing in full force.

[roryf]

If the loan is fully payed up there should be no reason why the bank should not cancel the surety.I have had some heated discussions with our banks on suretyships.Banks want to make all their money with zero risk to themselves and all risk on us business people.

Same with some landlords,I always fight not to sign suretyships and to date have only had to sign one out of 15 premises,only because I desperately wanted the premises.

[Greig Whitton]

There may be two ways of cancelling the suretyship:

1. The pragmatic route: Do you have any leverage with the bank that issued the loan? (i.e. does the bank stand to make money from you - e.g. bank fees, current or future financing needs, etc.) If you have any leverage, and the loan is settled, you could try playing hardball with the bank ("I pay you guys XXXX in banking fees annually. Return my suretyship or I will take all of my business somewhere else.")

2. The legal route: In terms of the Matrimonial Property Act, personal suretyships may not be binding if the person signing them is married in community of property and does not have consent from their spouse.

[AmithS]

If the loan is fully paid up wont the surety be invalid and automatically cancelled in any case it should of been attached to the loan itself?

[Justloadit]

If the loan is fully paid up wont the surety be invalid and automatically cancelled in any case it should of been attached to the loan itself?

Only if the surety was drawn up, with a clause to that effect.

In fact, when ever I need to sign a surety, I ensure that the surety is for the particular transaction only and nothing else, with a very descriptive clause stating what the surety is for exactly, and the terms under which the surety expires. I have done this with my bank on a number of occasions, and they have always accepted.

[Dave A]

In fact, when ever I need to sign a surety, I ensure that the surety is for the particular transaction only and nothing else, with a very descriptive clause stating what the surety is for exactly, and the terms under which the surety expires. I have done this with my bank on a number of occasions, and they have always accepted.

This is the best way to do it.

However, if it is a general rather than a specific suretyship, the solution is to terminate one of the parties.

There are three parties (or types of parties if any one of these consist of multiple persons (juristic or natural)):
The Debtor
The Creditor
The Surety

So bearing this in mind -

The development was a success and we are now transfering our units into a shelf company and closing off the original development company.

That should do the trick quite nicely.

Your only possible problem in actually closing off the development company in full is the issue of warranties and claims on defects. Of course, this used to be the trick commonly used by developers to dispose of that particular pesky challenge, but I'm not sure it's quite as simple as that nowadays.

Bearing this in mind, the other solution would be to terminate the Creditor - i.e. change banks.

[Justloadit]

I am very concerned about the wording of the surety, especially when it was originally signed, pre-NCA days. In the old days, it was a very broad base for the surety to cover, and did catch many people later in years, when some one defaulted the bank , especially when a company was sold, as an ongoing concern, the original surety was still valid. Another one was a share holder/director signed surety at a supplier, and years later either resigned, or sold his share in the company, the original surety is still valid with the new owners.

So be careful to disregard the cancellation of sureties, look at each circumstance carefully.