There is a great article written by SmartCompany.com.au on a tragic story of a successful business, whose director died, and as a result, the company has been placed into administration.

Not many people know, but if a director has personal guarantees on a loan, the financiers have a clause in the majority of contracts that if that director dies, they will call on the full amount of that loan immediately!

As you would agree, this is the worst time that this could happen for several reasons:

1. Staff morale would be low due to employment uncertainty (Eg; What’s going to happen now that the boss has died?)

2. Creditors withdraw due to the unkown (Eg; How are they going to pay the accounts now that the decision maker is gone?)

3. The estate from the deceased director comes calling - It’s the estate lawyers job to get as much out of the estate as possible for the surviving partners, so loans need to be paid, accounts tidied up, shares in the business attributed to the spouse or relevant party. (This is why a Buy/Sell Agreement is so vital alongside a structured Keyman insurance policy)

So have a think about what could potentially happen to your business and the value of it if the unknown were to happen. If you wanted it to be sold at time of death for your family’s sake, do you think that a worthy buyer would purchase it with the above mentioned points outstanding?

of course not! They would smell a ‘Fire Sale’ in an instant and the surviving spouse, who doesn’t particularly want anything to do with the business due to grief or ability, would just want it sold and pocket the money.

In that event, the remaining business partners will be left with a forced sale, or a partner who they never wanted in the first place.

All this can be avoided by a simple Keyman insurance policy being in place. Otherwise known as ‘Life Insurance’ for the business. you can Email me or call me on 1800 989 657 to discuss how easy it is to start the cover, and we’ll even shop it around with a range of insurers for you.

For something that is rather insignificant to set up, can save you from something catastrophic to your business and the impact on your family in the process.

Paul Davies