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Contingent Liability
This plan is a variation of Keyman assurance
It is designed to protect a company against the potentially disastrous effects of the death of a director/shareholder who has secured certain loans or credit facilities on behalf of the company and, in addition, protects the deceased director/shareholder's estate from a claim by the creditor.
Most private companies (including close corporations) are compelled to use the personal assets of its director/shareholders to secure loans and credit facilities. This will very often require the director/shareholder acting as surety and co-principal debtor.
The death of the director/shareholder could result in the loan or credit facility being re-negotiated or terminated. In addition, the director/shareholder's estate could be adversely affected as a result of the obligation assumed. As surety and co-principle debtor, the creditors would be entitled to look to the deceased estate for repayment of the loan or cancellation of the facility. In this respect a deceased estate is a soft target because it is usually quite liquid. Should a creditor lodge a claim against the deceased estate this will clearly disrupt the deceased's estate planning and in all probability will cause a major liquidity problem. Contingent liability assurance ensures that the company has sufficient resources to settle such claims and protect the deceased estate.
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