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Expert: - 11/25/2009


Question
My former company purchased equipment over 8 years ago from a leasing company and in turn, I signed a personal guarantee for the equipment.  About 24 months ago, a private equity firm made a majority investment into us and I left shortly thereafter and they took over operations.  The PE firm loaned money to the company over the next 18 months that was secured by the assets of the company.  1 month ago the PE firm decided to do a UCC article 9 and move all assets to a new company leaving my former company with debt and worthless stock.

I'm now getting calls from the leasing company demanding payment  since they are not getting calls back from the new company or PE firm.

I have no idea of where this equipment is and/or if it is still operational.  What are my options at this point?

thank you.

Answer
John-
Boy, this is a toughie.  This is a legal matter and you should seek professional legal representation, but should ultimately go in your favor for the following reasons:
* The leasing company accepted at least 18 months worth of payments from the new owners (private equity firm).  This demonstrates knowledge of and acceptance of the change in conditions.
* There should be corporate meeting minutes – and corresponding records filed with the Secretary of State – that demonstrate the change in your position with the company.  
* The UCC-9 filing further documents the (attempted) transfer of title to the equipment in question.  This document additionally validates your position and should also provide the leasing company with the details necessary to track the party and the materials in question.

The problem is that you do not indicate any notification to the leasing company of the cessation of your obligation(s).  Based on that, the burden is yours to demonstrate that you are not liable.  It is likely that you may still have some obligation, such as the expenses for recovery.  They will claim that had you provided proper notification that they would have secured an additional guarantor and released you at that time.

This would be like selling your car but not telling the bank (or your insurance agent) that you had sold it.  If something happened there is no reason not to believe that it was still your responsibility and you would need to demonstrate that you were blameless.

Check the terms and conditions of the contract and the related guaranty.  You might (or might not) want to go to arbitration – see what the attorney recommends.

Good luck, I would be interested to know how this comes out.

Michael

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Michael Fay

Expertise

My focus and specialty is in credit, so that the risk of the debt itself is minimized. This means understanding it, predicting it, and helping to correct it. Having worked in contracts & credit, I have also worked with all of the related documents such as Guarantees (personal and corporate), and Security Agreements (aka UCC’s or “liens” – but I caution you in using those interchangeably).

Experience

I have a broad background with more than 15 years in the credit industry. Ten years with Dun and Bradstreet, first as a field reporter creating reports, then in customer service, finally I served as the credit manager designing risk models for many national and international customers through D&B’s Outsourcing function. Five years with another publicly traded firm where I created the credit department and then served as credit manager for North America. At both companies we used both business and consumer data. You probably know that both business and personal credit have scores; what you might not know is how many different types of scores there are. I am familiar with and have used many different scores in each. Also be aware that each credit type (business & personal) is unique with different processes and different time frames. I have served on the board of directors for companies in many states and still serve in some capacity in a few. I contribute to credit publications and work with the non-profit arm of the SBA called SCORE.

Organizations
ACA International * NACM * Credit Risk Managers * SCORE (SBA)- Counselors to America’s Small Business * Payment Card Industry Network * PaymentSource.com * D&B Alumni * Psi Chi, National Honor Society for Psychologists

Education/Credentials
BIS in Business and Psychology, University of Minnesota * MBA is still in progress (on-line)

Awards and Honors
State of Colorado - State finals in Accounting and Advanced Accounting. * D&B Leadership Winner (3 times) * D&B Leadership Finalist (3 times) *

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