Corporate Law Assignment.docx

The C S Private Limited has obtained a loan of Rs. 2 million from Active Bank Limited against the collateral of company. No shareholder has given any personal guarantee but a director has given guarantee for 1million. The company ran into difficulties and sustained losses. Bank issued a letter for recovery of the loan. At the time being company has only net value of the assets Rs.1,00,000. Discuss and answer the following question with reason and legal ground.

1. Can Active Bank claim over the property of the company? 2. Who is liable for loan director or company itself? 3. What about shareholders’ position to pay loan?

Answers: 1. Yes, the bank can claim over the property of the company but only when the company is unable to pay the loan after the maturity period. Plus, the company is kept as the collateral for the loan. Therefore, Bank can claim over the property of the company. 2. If no personal guarantees were made then the company would only be liable for all its debts. In private limited, companies themselves are separate legal entity from the shareholders limiting the liability of each shareholders. If a director personal guarantees on any loan, lease or contract, he/she will be made personally liable for the debt if the company is unable to pay. So, director as well as the company is liable.

3. The shareholders are in no position to pay the default loan, as no personal guarantees were made by them. The limited liability feature of private limited company protects them.