A security acts as a fallback position for banks should an applicant default in payment of a bank loan. However, care should be exercised before accepting a guarantee of a limited company . Discuss
Guarantee is a written promise made by one person to be collaterally answerable for the debt,
default, or miscarriage of another.
Care must be exercised before accepting the guarantee of a limited company. the following should be noted before accepting a guarantee of a limited company:
- The memorandum of association must contain a special power to execute guarantees. If no specific power exists, any guarantee executed will be ultra vires the company thus unenforceable.
- The articles of association stipulate the manner in which the guarantee may be executed, i.e. either:
- (i) under hand of a dully authorized official(s) by the resolution of the board of directors, or
- (ii) under seal of the company.
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