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Guarantors should be especially careful of the manner in which the corporation pays debts that have been guaranteed by principals who control where the money goes. Payments of guaranteed debts with corporate funds from an insolvent corporation can be voided if a bankruptcy is filed within 90 days of the payment - if the payment was due or past due. On the other hand, transfers of liens to secure debts guaranteed by principals can be voided to the extent of the principal's obligation within one year prior to filing a bankruptcy. This is but one example of how one payment method results in guarantor liability while the other payment method results in guarantor exculpation, even though the same value may have been transferred in both instances. |
Equally true is that principals and guarantors should be vigilant in the manner in which they receive funds from the potentially insolvent corporation to pay themselves back for loans made to the corporation. Actions of the principals prior to a voluntary or involuntary bankruptcy proceeding are important for other reasons also. Acts that they do can effect whether the officers can remain in control of the corporation after the commencement of a Chapter 11 or whether they have conflicts of interest that will follow them or whether their history leaves them vulnerable to an action to place others in charge, such as a Trustee, which results in the end of the bankruptcy reorganization process. For the principal/guarantor, the goal is often either effective Chapter 11 reorganization or payments against guaranteed obligations - payments, that is, that are stay where they are intended to stay. |
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