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Directors liability in a pvt. ltd. company

Rahul D (Executive) (39 Points)

17 February 2012

Hello,

A person is a director in company (say A) with 52% shareholding. There are properties & investments in the name of this copmany A. Now this director is a personal guarantor in another company (say B) which has defaulted on a corporate bank loan.

Can the bank of company B now demand/callup the investment & properties that are in the name of company A? Or can the bank demand only the monetary value of the shares that the director has in company A? Or is there no liability of the director as a personal guarantor, as far as company A is concerned?

Please let me know if additional details are required. Thanks for your inputs.

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8 Replies

CS Rajveer Rai, Gurgaon (CS) (646 Points)
Replied 17 February 2012

personal guarantee is given on the basis of net worth of that person. investment in property and stock is included in networth.other views are also solicited

Smriti Dhawan (Company Secretary ) (347 Points)
Replied 17 February 2012

I, Agree with Mr. Rajveer the personal guaranttee is on the basis of networth of that person, so while filing CBD-23 with Bank in which we mention the asset and liabilities of the person who is giving Guarantte if the Shares of Company A are mentioned for the purpose of valuation of Net woth of Director and details provided to Banker of B company then Bank can demand shares of Company A as these Shares are personal assets of the Director.

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Rahul D (Executive) (39 Points)
Replied 18 February 2012

Hi,

Thanks Rajveer & Smriti for your inputs. As I understand, the persons liability to B's bank is limited to his shares value in company A. So B's bank cannot demand the property & investments in the name of company A explicitly, but only the monetary value of the shares that the person holds in company A, at present valuations?

Please correct me if I am wrong or missing any further information. Thanks.

CS Rajveer Rai, Gurgaon (CS) (646 Points)
Replied 18 February 2012

correct Rahul it is personal guarantee limited to that person not corporate guarantee for which company will be liable

Rahul D (Executive) (39 Points)
Replied 20 February 2012

Originally posted by : CS Rajveer Rai, Gurgaon
	correct Rahul it is personal guarantee limited to that person not corporate guarantee for which company will be liable

Mr. Rajveer, thanks for your confirmation. As a final insight alternative to the one outlined earlier, can B's bank takeover the 52% majority shares in company A from the person (instead of just demanding the monetray value of the shares) and then as a result take control of the property & investments of A?

Appreciate your time. Thanks

CS Rajveer Rai, Gurgaon (CS) (646 Points)
Replied 20 February 2012

In my view it is possible unless it is a listed co. if listed co. then you have to comply with the PA requirement as given in take over code.other expert views are invited on this issue

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Ankur Garg (Company Secretary and Compliance Officer) (114783 Points)
Replied 20 February 2012

Agree with learned member Rajveer.

No the bank of company B cannot demand the investment & properties that are in the name of company A bcoz loan is secured by the personal guarantee of director and not by corporate guarantee of Company A.

However Bank is eligible to the properties which are in the name of director including 52% shareholding in company A.

Indirectly the wealth of company A (through its property and investments) help company B’s bank to get good valuation of 52% shares that are in the name of director.

Regards

1 Like