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VIC Friend's Husband Passed Away - Will She Be Liable for Commercial Lease?

Discussion in 'Debt and Bankruptcy Law Forum' started by Doug Newnham, 18 April 2016.

  1. Doug Newnham

    Doug Newnham Member

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    A friend's husband recently passed away. He was sole director of his company with the company financed against the family home. He has left no life insurance and the business turns out not to be saleable. He recently signed a commercial lease for the premises for three years. Will she be liable for the commercial lease?
     
  2. Tim W

    Tim W Lawyer

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    1. Going only by what you have said here, missing facts missing,
    and with unstated ifs, buts, and maybes not allowed for,
    and without referring to her specific case, if a person was not a director,
    nor a party to the loan her/himself personally, nor a guarantor,
    then I don't see how that person could be liable for a debt owed by a business
    they were not actually involved in.

    2. As to the business
    • Why is the business "not saleable"?
      Was the deceased (and his personal services) the only asset?
    • Is it a going concern that could continue to operate without him?
    • Was it a corporation with a sole director, or was he a sole trader (even if using a registered business name)?
      I ask because lots of people don't understand the difference.
    3. As to the house
    • Yes, the security interest in the house will be in play for the executor.
    • Yes, absent any insurance cover, and subject to any terms and conditions of the loan,
      it could, in the worst case scenario, be necessary to sell the house to satisfy the business debt.
    • Check carefully the T&Cs of the loan - sometimes, having life insurance is a condition of the loan. So check just in case there's a policy there that may have been overlooked.
      -
    4. See if there are any life insurance products attached to the deceased's personal credit cards or other financial products.
    Every dollar helps.

    5. Who is the executor?
    The executor will need to sit down with the lender, the business' accountant, and the business' solicitor as soon as possible.
    Does the executor have any role in respect of operating the company (eg as a Voluntary Administrator?)
     
  3. Doug Newnham

    Doug Newnham Member

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    Thanks for the reply. Sorry for the lack on information - I learned more last night. The company was a Pty Ltd company and the lease is in the name of the company signed for by the sole director - the man who has passed away.

    I said the business wasn't saleable as I was told it was posting a large loss. In looking at the P&L last night the situation isn't as bad as I was told. Only posting a small loss that could easily be turned around by someone who knew the business.

    So, she will attempt to sell the business to an interested party this week. That said, if that doesn't happen this week she will liquidate and that will leave the lease as the only outstanding concern (besides the debt). So I'm guessing that would leave the lease 'not her problem'?
     
  4. Tim W

    Tim W Lawyer

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    Not that simple.

    A corporation is a legal entity separate from the directors personally
    (that's the point of them!).
    For sole director corporations, the Executor/ legal person representative
    of the deceased director can appoint a new director.
    But the executor has to be appointed first - so you need a grant of probate asap.
    Without it, if she is not involved with the business, then it may not be hers to sell.
    Have a read of this.

    In any event, the lender's security interest in the house needs to be dealt with.
    Will or not, you cannot assume that she will get to walk away free and clear with the house
    unless you can find some other way to pay out that business loan.

    Time to sit down with the lawyer, the accountant, and the executor.
     

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