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After being in business for 21 years, Partner A forces Partner

Customer Question
B out of the company...
After being in business for 21 years, Partner A forces Partner B out of the company. Partner A, being the majority shareholder, has documents drawn up. Partner B is on a personal guarantee for an extremely high credit line, as Partner A could not personal guarantee the credit line. Documents in the split state that Partner A will do all he possibly can to remove Partner B from such guarantees. None of this has been done, in fact after the split occured Partner A maxed out the credit line. The bank told Partner B that he is still fully responisble for the credit, but Partner B has nothing to do with Partner A's company and financial decisions that they are making. The bank also modified the credit line with out telling Partner B, and is still holding him responsible. Does Partner B have a right to make Partner A sell off assets of his company to put the loan in good standing? What rights does Partner B have?
Submitted: 8 years ago.Category: Business Law
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6/3/2009
Business Lawyer: Richard - Bizlaw, Attorney replied 8 years ago
Richard - Bizlaw
Category: Business Law
Satisfied Customers: 10,702
Experience: 30 years of corporate, litigation and international law
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Other than the obligation to give his best efforts to remove Partner B's guarantee do the documents covering the split say anything else about the guarantee obligation? Does the credit line expire after a period of time and then is renewed? If so do you have any obligation under the documents to continue to guarantee the renewed line of credit?

 

Do you have any concern about Partner A meeting the financial obligations related to the credit line? Is the credit line current at this time?

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Customer reply replied 8 years ago
The documents do not cover anything else about the guarantee obligation.

The credit line did expire after 1 year, and the bank, without notifying Partner B, renewed the credit line after having spoke with Partner A.

The credit line is not current and has not been in good standing. Partner A was suppose to provide financial statements to show how it will be paid down, but has not done so. To our knowledge, Partner A can not meet the financial obligations for the credit line, which is why Partner B initially had to be the personal guarantor.

Following the company's split, Partner A was informed that he could not take any more money out on the credit line. The bank then allowed Partner A too, and he maxed it out.

We are having a difficult time dealing with the bank, the bank claims that Partner A said that both his and Partner B's companies are still connected, when that is not the case at all.
Business Lawyer: Richard - Bizlaw, Attorney replied 8 years ago

When you say that Partner A was informed that he could not take any more money out of the credit line, assume that was communicated by Partner B to Partner A but not to the Bank? On that basis, here are the things I think you need to do.

 

First review the terms of the guarantee to make sure you are subrogated to the Bank's rights if the bank requires you to pay on the guarantee.

 

Second, notify the Bank that Partner B's business has no relationship to Partner A's business.

 

Third, notify the Bank that you are revoking any right the bank has under the guarantee to modify the terms of the underlying credit line or to make advances under the credit line or renew the credit line without Partner B's written approval. You should make sure that your guarantee will not cover any such changes made without Partner B's approval. If the Bank was aware that Partner A was not to increase the credit line, you should also state that to the Bank in writing.

 

As a guarantor you cannot revoke your guarantee after the bank has advanced funds. However, you can prevent your guarantee from applying to increases in or changes in the terms of the underlying debt being guaranteed without your express approval.

 

Had this been done at the time of the split, your guarantee would not cover the increased borrowing under the credit line.

 

If this answer is responsive to your question, please accept it. That is how we are compensated. I would also be appreciated if you provided feed back on your view of the answer. Finally, if the answer was especially helpful you can provide a bonus.

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