Will your claims against sureties be prejudiced if your claim against the main debtor is compromised during business rescue proceedings?

Regular LawDotNews readers will recall the different approaches taken by various High Courts to this question, and creditors will be relieved to learn that now the Supreme Court of Appeal has confirmed that your suretyship claims can indeed be protected – but it’s up to you to do so.

 

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Your best protection remains a correctly worded suretyship – as in this case, where the bank’s standard suretyship document specifically catered for the eventuality of the main debtor’s claims being compromised. Have your lawyer check your suretyship forms now.

Moreover, said the Court, the surety’s liability to you is “fixed” if you have actually taken final judgment against him/her, and is not therefore affected by a subsequent business rescue plan. Take enforcement action early.

More widely, the Court commented that “unless the plan itself made specific provision for the situation of sureties”, a surety’s liability may in any event be unaffected by business rescue. On one hand, that might possibly throw a lifeline to even those creditors not assisted by the above principles. On the other, it implies that you might actually lose your suretyship claims if the rescue plan is worded to that effect. Long before you are called on to consider any business rescue plan, check that nothing in it might let sureties off the hook.