Question 6
Mr Rich comes to see you. You've been his attorney for many years and you've established trust with your client, so whatever you say, he will listen. Mr Rich's daughter want to start a business and ABC Bank requires a suretyship on the R1m loan. Explain the risk involved should Mr Rich act as surety for his daughter and suggest ways in which Mr Rich's liability can be limited.
If Mr. Rich acts as a surety for his daughter's business loan, it means that he will be legally liable for the loan repayment if his daughter is unable to fulfill her obligations. This presents a significant financial risk for him. If his daughter's business fails or she defaults on the loan, Mr. Rich will be responsible for repaying the R1m loan amount.
To limit Mr. Rich's liability in this situation, there are a few possible options:
1. Limited Suretyship: Mr. Rich can negotiate with ABC Bank to limit the extent of his liability. This could involve setting a specific limit on the maximum amount he would be liable for or a time period within which his liability would expire.
2. Joint Suretyship: Mr. Rich could explore the possibility of involving other individuals as co-sureties. This would help distribute the risk among multiple parties. However, it's important to note that this may be difficult to negotiate with the bank if they specifically require Mr. Rich as the surety.
3. Collateral or Security: Mr. Rich can offer alternative forms of collateral or security to the bank to mitigate his personal liability. This could include using property, investments, or other assets that he owns as security for the loan. By doing so, the bank may be more willing to reduce Mr. Rich's overall liability.
4. Loan Guarantee Insurance: Mr. Rich can consider purchasing loan guarantee insurance. This would provide coverage in the event that his daughter defaults on the loan, thereby limiting his personal financial risk.
It's crucial for Mr. Rich to consult with a qualified attorney or financial advisor to thoroughly understand the terms and conditions of the suretyship agreement and to explore the available options to protect his financial interests.