News

Spousal Permission Needed for Personal Guarantee

In M&A transactions it happens often that a party, such as the selling shareholder, is asked to give a personal guarantee in order to secure payment for a breach of warranties. Even if the shareholder agrees to do such and signs the guarantee, the purchaser might be out of luck.

Under Dutch Caribbean law, a person who is married needs permission from his or her spouse to enter into certain agreements, such as a personal guarantee. If permission is not obtained, the spouse can nullify the guarantee which leaves the purchaser empty-handed. However, there are exceptions to this rule. For instance, no permission is needed if the guarantee was given by a director of a company who is also a majority shareholder and the guarantee can be considered to be given in the ordinary course of business.

Earlier this year the Court of First Instance of Curaçao ruled such a personal guarantee to be legally nullified. The husband had given a personal guarantee for a bank credit facility entered into by company X BV. After X BV was in default with repayments on the credit facility, the bank tried to claim under the personal guarantee. In response the bank received a letter from the wife in which she nullified the personal guarantee. The court ruled that since none of the statutory exceptions was applicable, the spouse had legally nullified the personal guarantee.