When a bank provides a credit to a BV, it often requests a guarantee from the director / shareholder as security for repayment. The DGA will often be prepared to provide this security, as otherwise, its company will not receive credit. The liability of the guarantor is often capped at an amount specified in the deed of guarantee.
In some cases, the bank must be alert that the spouse also signs the guarantee deed.
The wife thereby gives permission for entering into the bail
The idea behind this is that a guarantee agreement entails risks, not only for the guarantor himself, but also for his spouse and, if applicable, his family. If the spouse commits himself as a guarantor without the consent of the other spouse, the guarantee is voidable. Only the other spouse (not the person who has entered into the bail) can invoke the cancellation. If the claim for destruction succeeds, the bail is deemed never to have existed.
The bank cannot then claim the deposit for payment
However, there are exceptions (1:88 paragraph 5 of the Dutch Civil Code) when the consent of the spouse is not required. The criterion for the applicability of that exception is whether the legal act for which the security is provided belongs to a legal act that tends to be performed for the normal conduct of a business. The Supreme Court recently commented on this. The case concerned an accountant who had acted as guarantor for financing raised by his company – of which he was indirectly director-major shareholder -. More specifically, the accountant had guaranteed the purchase in a partnership in which he started practicing as an accountant. Two years after the accountant bought himself into the partnership, the partnership got into financial problems and dissolved. Rabobank subsequently canceled the financing agreement with the auditor’s company and claimed the entire financing. Rabobank also called on the accountant to pay an amount of € 350,000 on the basis of the guarantee.
The wife claims that her consent was required and has canceled the bail agreement due to the lack thereof. According to her, permission was necessary because her husband had committed herself as a guarantor other than in the normal course of his profession or business.
The court and the Court of Appeal rejected Rabobank’s claim
The court and the Court of Appeal were of the opinion that ‘buying into a partnership’ cannot be regarded as a legal act that is characteristic of the normal practice of the profession of an accountant. Rabobank did not agree and instituted cassation. The Supreme Court ruled that the Court of Appeal had failed in its turn and considers that for a guarantee for bank loans the exception to the authorization requirement of Article 1:88 paragraph 5 of the Dutch Civil Code does not automatically apply. The Supreme Court indicates that in the present case there may be a normal conduct of business now that the financing was required to enable the accountant’s company to conduct its normal business and that there was no special risk associated with this financing. The Court of Justice should have taken this into account in order to determine whether or not the legal act is part of the normal conduct of business of the company of the accountant.
Much depends on the facts and circumstances when assessing whether normal business operations are involved and in which cases the wife’s consent is required. When in doubt, it is always worth asking a lawyer to check this against current regulations and / or case law.