Suretyship for financing: ordinary course of a business?

Legal news

Suretyship is a contract under which one party, the surety, obliges themself towards the other party, the obligee, to fulfil an obligation to which a third party, the principal obligor, is or will be bound towards the obligee. There is a distinction between private suretyship and collateral. When suretyship has been granted by a company, this always concerns collateral. But a natural person can also grant collateral. This is – particularly – the case if the natural person acts for the purpose of the ordinary course of the business of an N.V. (public limited company) or a B.V. (private company with limited liability) of which that person is a director and holds more than 50% of the shares alone or with their fellow directors. In recent years, courts have given an increasing amount of judgments on the question under which circumstances a suretyship is entered into for financing for the purpose of the ordinary course of a business (as a result of which this constitutes collateral). Some case law in that respect is discussed in this contribution.