There The question remains, should directors give

There are two
fundamental principles involved here. First, every company has its own legal
personality, meaning that it has its own legal identity, which is not the same
as the identities of its shareholders and directors.

Secondly, in the case
of limited companies, which is the case here, the liability of shareholders is
limited: shareholders are liable to pay for their shares, but they are not
liable for the company’s debts.

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Sometimes, however,
directors, looking to finance a construction project are being asked by their
lender to give a personal guarantee. The question remains, should directors
give a personal guarantee? What are the implications?

Yes. A director can
give a personal guarantee.

What is a personal

A personal guarantee (also called an individual guarantee) is
a promise, given by an individual (in this case, the director), to ensure that
a third party (the company) fulfils its obligations or, if the third party
fails to do so, that the individual will fulfil those obligations.

It is a contractual agreement that creates a secondary
obligation to support a primary obligation of one party to another. Personal
guarantees may take the form of a stand-alone agreement or a simple contract
provision. The primary obligation may be to repay a loan made by a lender to a
borrower. The guarantor promises the lender that the borrower will perform its
obligations and, if it does not do so for any reason, the guarantor will
perform them on its behalf.

this situation however, even though Mr Ayobola as a director can guarantee the
facility, it is important to note that he is not involved in the technical
running of the business and as such is limited in the knowledge of the
operations of the company which have a major impact on its ability to repay the

more pragmatic approach would be for both directors to be involved as
guarantors to the loan.


Stock Exchange Securities as a form of security affords the following

Ease of obtaining loans. Having securities makes
it easier to obtain loans from any institution.

Lower applicable interest rates. Secured loans
attract lower interest rates.

Eliminates disadvantages of poor credit

It is also easier to convert to cash, thus
making it a more attractive security for a lender.




Right of lien:

A lien is the right of a creditor in possession of goods,
securities or any other assets belonging to the debtor to retain them till the
debt is repaid, provided that there is no contract express or implied, to the

It is the right to retain possession of specific goods or
securities or other moveables of which the ownership vests in some other person
and the possession can be retained till the owner discharges the debt or
obligation to the possessor.

A lien is any official claim or charge against property or
funds for payment of a debt or an amount owed for services rendered.

Once executed, a lien becomes
the legal right of a
creditor to sell the collateral property of a debtor who fails to meet the
obligations of a loan or other contract. The property that is the subject of
a lien cannot be sold
by the owner without the consent of the lien holder.

Testate Succession:

refers to the distribution of an estate according to a will.

A will or testament (hereafter referred to as a “will”) is a
legal document that regulates what happens to a person’s estate (assets and
liabilities) after his or her death.

Cash flow reports:

A cash flow report,
is a financial statement that shows how changes in balance sheet accounts and
income affect cash and cash equivalents, and breaks the
analysis down to operating, investing and financing activities.

Credit Reference Agencies:



To finance Penny’s franchise, the following areas would be

The franchise brand – does the brand have a
good track record? Does the brand have a track record of consistent cash flow?

The number of current locations of the






The purpose of liquidation is to wind up the affairs of the
company with a view to ultimately ending the legal existence of the company. To
accomplish this there will be an investigation into the financial circumstances
of the company.

Resulting from this investigation a list of creditors and assets
of the company will be identified, unusual transactions may be flagged for further investigation or action and
a dividend may be issued to creditors before the company is ultimately
deregistered and ceases to exist.

These tasks are performed by an independent person (or persons)
called a Liquidator.

A liquidator is
the officer appointed when a company goes into winding-up or liquidation who
has responsibility for
collecting in all of the assets under such circumstances of the company and
settling all claims against the company before putting the company into

The first and foremost duty of a liquidator upon appointment is to
commence an investigation into the affairs of the company. To assist in this
role liquidators are granted extensive responsibilities over the affairs of the
company including the transfer of the powers of management from the directors
to the liquidator.

The Liquidator may then investigate transactions entered into by
the company. While there are a number of different rules, where the company has
made payments recently the liquidator may be able to call for these funds to be
repaid to the company.

Ultimately, the liquidator will attempt to gather in all amounts
owing to the company, sell off the valuable assets of the company and collect a
pool of funds to pay out to the various creditors of the company.

The liquidator is the main participant in insolvency
proceedings. He is responsible for the management of the company and its assets
during the period of winding up, and he has its legal and judicial

Undoubtedly, the liquidator acts as a key figure in the
liquidation process



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