If you, as business owner , provide a surety bond to provide financing for your corporation, the question is whether or not your spouse/partner must give consent. There has been much litigation on this question. Recently, the Supreme Court ruled on an accountant who wanted to buy into a partnership and provided the bank with a surety bond. His spouse did not consent to this.
Facts
An accountant wanted to buy into an accounting partnership with his company. The bank provided his company with financing for this in 2007. As indirect director-major shareholder, the accountant guaranteed this goodwill financing up to an amount of €350,000.
After the accounting firm's largest client went bankrupt in 2012, the accounting firm was dissolved and deregistered from the Commercial Register in late 2013. Afterwards, the bank cancelled the financing of the accountant's partnership and demanded repayment of the entire financing. It also appealed to the accountant on his surety bond. Some time later, his wife annulled the bail on the basis of Article 1:89 BW due to the lack of her consent to the bail as referred to in Article 1:88 BW. This bail is then deemed to have been null and void from its inception and the bank cannot invoke it.
Spouse's consent for bail not required
Thus, the wife believes that she should have consented to the bail. The district court and the court of appeals agreed with her. In doing so, they found the following to be significant.
In an earlier judgment, the Supreme Court had considered that the genesis of Section 1:88 of the Civil Code, which establishes this consent, reveals that the legislator considered the principle of family protection important. In paragraph 5 of this article, the Supreme Court made an exception to this. But in doing so, with the words "provided that it is made for the benefit of the normal business operations of that company" it intended a substantial limitation. The consent of the other spouse is not required if the legal act, for which the security referred to in article 1:88 paragraph 1 opening words and under c of the Dutch Civil Code is provided (usually the financing), itself belongs to the legal acts that normally are performed in the ordinary course of business.
The district court and the court of appeal found that entering into financing for the purpose of buying into an accountancy partnership by paying a goodwill sum of €350,000.00 in a lump sum is not a legal act, which is typical in the sense that it is customary for the purpose of the normal practice of the accountancy profession. They found that the wife should have consented to the bailment.
The Supreme Court thinks otherwise
The Supreme Court considers that the Court of Appeal must examine whether the loan for which the accountant guaranteed himself is part of the legal acts that are normally performed for the benefit of his company's normal business operations. What is important here is that - the financing was required to enable the company to carry on its normal business activities, - that the financing was a normal business transaction and - that no special risk was attached to this financing. According to the Supreme Court, it is irrelevant that there were other ways for the accountant to practice his profession (e.g., employment) and that purchasing into an existing partnership can also be done in another way.
The court applied too strict a standard in the eyes of the Supreme Court. The Supreme Court ruled that another court should review the case.
In this case, the situation may work out well for the accountant. If you have questions about the risks involved in entering into a bail bond agreement or if you are sued for your bail, we can help.
