RE: Legal Opinion regarding continuation of personal guarantee of existing directors of Company 1 Till adjustment of the liability of the company even after transfer of all the shares of the Company to third parties.
We refer to your letter no. ……………… dated July 03, 2007 on the above subject.
On perusal of your letter, it appears that, Company 1(“the Company”) has been enjoying various credit facilities with Bank 1 (“BANK 1”) since 2000. Due to various reasons the Company, at present has a huge amount of liability overdue with BANK 1.
Now the Company has approached BANK 1 for approval of transferring all the shares of the Company to some interested third parties. The head office of BANK 1 has verbally agreed to their proposals but they did not agree to release the existing directors from their personal guarantee till adjustment of the liabilities of the Company.
In these circumstances you have requested our legal opinion as to whether BANK 1 may retain the personal guarantees of the existing directors of the Company, even after transfer of their entire shares of the Company to some interested third parties.
The Personal Guarantees given by the existing directors of the Company were given in their personal capacity. Therefore, even if they are no longer directors/shareholders of the Company, their personal guarantees shall remain valid till adjustment of the liabilities of the Company with BANK 1, unless they are discharged by BANK 1 from their obligations under the Guarantees. Whether or not BANK 1 should retain the personal guarantees of the existing directors/shareholders of the Company is a commercial decision to be decided by BANK 1. In our opinion there appears to be no legal complication if BANK 1 wants to retain the personal guarantees of the existing directors of the Company even after transfer of their entire shares of the Company to some interested third parties.
Should you have any further query, do not hesitate to revert to us.
For: “The Lawyers & Jurists”