Reckless Business Partner

[Tiger1977]

A personal surety is always valid however you are married. The Bank would go after the person that signed the surety (as I originally said) but would only be able to get according to how the person was married. Marriage does not stop you signing personal surety and neither does it stop the Bank or whoever might be trying to recover their money. They will come after what is legally theres according to the surety.

As I said I have been thro this about 20-25 years ago. I also signed surety (stupidly) I know exactly about the matrimonial property act. (Oh and by the way I have been married 31 years)(And I also have a pty ltd and have to face the fact that some suppliers require personal surety)

So as I have said before ..... how you might interpret some small print you may find is sometimes different to how it plays out in real life.

Hi All, thanks for the comments. Neither of us are married so its a moot point. I do know that personal surety still stands even if married - your spouse would then be liable as well if it is in community of property. You have to as Directors sign personal surety for purchasing assets so there is no way to escape it unfortunately. The vehicles could be sold to cancel out the HP loans but then no further work would be able to be done. I am concerned about the overdraft which accrues horrific interest and the debt owed to suppliers which we cant pay at the moment, we are just trying to keep head above water paying debit orders and fixed monthly operational costs. Someone suggested that I approach the bank and offer them R30K settlement (my 30%) towards the overdraft in order to remove my surety and then resign as Director/member. However, then I have absolutely no control anymore and am still liable for the loans on the vehicles and possibly some supplier agreements. The business is a great business with very little competition but one big job completely messed up our cash flow with us not being paid by a giant corporate - this is what started the initial problems which have subsequently gone from bad to worse!

[Greig Whitton]

A personal surety is always valid however you are married.

Bullshit.

Marriage does not stop you signing personal surety and neither does it stop the Bank or whoever might be trying to recover their money.

Just because a creditor attempts to enforce a suretyship does not mean that the suretyship is automatically valid.

As I said I have been thro this about 20-25 years ago.

So your experience from a few decades ago trumps the law? You need to work harder on your trolling.

[Greig Whitton]

I do know that personal surety still stands even if married - your spouse would then be liable as well if it is in community of property.

Not necessarily, but as you point out this is a moot issue since you aren't married.

Do you have a Members Association Agreement? If so, what does it say about member responsibilities, voting rights, etc.?

[Tiger1977]

No, its a CC so no MOI required at the time of registration.

[Tiger1977]

Also, he is the "key man" in the business with the industry specific expertise and does all daily operations. I was always supposed to be a silent partner but landed up doing all the admin and business end on a part-time basis. I am concerned that I am going to be held accountable for not enforcing certain parameters. However his attitude has always been one of "I'm the majority shareholder so I make the decisions" so he is very difficult to control.

[Greig Whitton]

No, its a CC so no MOI required at the time of registration.

In that case, the default provisions of the Close Corporation Act will apply with respect to resolutions and quorums. Section 48 is of particular relevance since it basically states that you can constitute a quorum and pass resolutions (even though you only have 30% of the members interest) if your partner persistently fails to attend members meetings.

However his attitude has always been one of "I'm the majority shareholder so I make the decisions" so he is very difficult to control.

This is your biggest impediment to any theoretical legal solution. If your partner doesn't change his attitude, things are only going to get worse.

You've tried to play nice with your partner and that hasn't worked. Either play for keeps (i.e. try to oust your partner and take over the business in full - obviously not easy or even desirable given that he has the operational expertise) or walk away after selling (or donating) your members interest to mitigate any future liability.

[HR Solutions]

Either play for keeps (i.e. try to oust your partner and take over the business in full

So take over the total debt and release him from all debt ...................... ?!?

Where someone who is married in community of property signs a surety in the ordinary course of their profession, trade or business and fails to obtain the written and witnessed consent of their spouse, the surety is valid and enforceable.

A further question when enquiring whether or not the surety was acting in the ordinary course of their business is: where the business was carried on through a company, was the suretyship executed to further the company’s business or the surety’s business?

Anyway we can argue till we are blue in the face - I would recommend getting a lawyers advice and going forward. I would not try to take over the debt on your own.

[Greig Whitton]

So take over the total debt and release him from all debt ...................... ?!?

It's an option. According to OP, the business has a lot of potential. Only OP can decide whether that potential justifies the risk of taking over all the debt.

A personal surety is always valid

Oh, look at this. The North Gauteng High Court declared that a personal suretyship was invalid just a few years ago. But you know better than the High Court, right?

[Andromeda]

I think Greig is suggesting that route merely to take him out of the picture.

Regarding the absence of an Association Agreement:
Most of the pertinent clauses of the Act cannot be varied by agreement. These are very nicely laid out by Nanika Prinsloo of Prinsloo and Associates Attorneys and Conveyancers:

The way in which members manage the Close Corporation: The Close Corporation Act states that every member is entitled to be involved in the carrying on of the business of the Close Corporation. This means that the Association Agreement cannot state that A and B will have the right to represent the Close Corporation in its business dealings but that C & D do not. Even if the Agreement contains such a clause it will mean nothing as the section in the Act overrides the Agreement.

Members are not liable for the debt of the Close Corporation – unless a member signs surety for the debt of the Close Corporation in his/her personal capacity, the member is not liable for the debt of the Close Corporation, even if the Association Agreement states so.

Decisions are made by way of majority votes. - each member has a vote in according with his/her percentage interest in the Close Corporation and this vote percentage cannot be changed by an Association Agreement. (My emphasis)

Each member has an equal right to manage the business (Unless a member is disqualified from doing so). Members all can manage the business, even if the Association Agreement may state otherwise.

75% consent of each member is required for a change in the business of the Close Corporation; a disposal of the assets of the Close Corporation. This also cannot be changed by the Association Agreement.

Payments to members will be in proportion to their percentage interest in the Close Corporation – members cannot change the percentage in which each member will share in the profits of the Close Corporation in the Assocation Agreement and the Act will apply.

[HR Solutions]

Greg I did open your link and stopped reading after it mentioned "Trust" ........ which is irrelevant here