Assignment 2018
Background
You are employed by Etruscan National Bank (Etruscan) in its loans’ administration department. (You have a BCom and two years’ experience). You report to Aphrodite, who is the national manager of loans’ administration. She has no formal legal training, but has 20 years’ experience in the area, and is familiar with both the legal and practical issues that arise. She is also regularly in contact with external legal advisors.
Apollo is a client of Etruscan. He is a geotechnical engineer with a substantial income. He is married to Hannibelle who runs a modest business making cupcakes (Extreme Cupcakes Ltd). Apollo is also a 50% shareholder in a company that builds boats (Beachhaven Budget Boats Ltd (BBB)). Apollo formed the company 20 years ago with a client. He initially took an active role in the business, but now has little involvement, other than receiving periodic reports. He ceased to be a director five years ago.
In the past 12 months, due to the economic climate, BBB has run into difficulties. It has always had an overdraft (unsecured) with Etruscan. The overdraft was unlimited in amount, but repayable on demand. It had never previously exceeded $10,000, but has now ballooned to $100,000 in debit. Apollo is unaware of this.
BBB had also taken out an additional loan with Etruscan of $100,000 for a term of six months. Apollo was aware of this and had executed a guarantee of the loan, after receiving an assurance from the Managing Director of BBB that the company would have no problem repaying the loan. The Managing Director had also told Apollo that he would also be signing a guarantee over the loan. However he subsequently “forgot” to do so, and Etruscan didn’t follow the matter up. When the loan fell due, and BBB couldn’t repay it, Etruscan extended the repayment date for another six months, without advising Apollo. The Managing Director of BBB has recently applied for a new long term loan of $200,000 to expand the company. He has told Etruscan that expansion is the only way BBB can survive.
Over the same period, Hannibelle’s cupcake business thrived. Excited by her success, Hannibelle spent most of the profits at the casino, often making large withdrawals from the company’s account with Etruscan. The withdrawals started become larger and larger, and Extreme Cupcakes account now has a debit balance of $20,000.
Upon reviewing the accounts of BBB, and Extreme Cupcakes, Aphrodite becomes concerned at Etruscan’s exposure. She then has a revelation that the obvious solution is to get personal guarantees from Apollo in respect of the total debt of both companies. Since Apollo is very wealthy, this will eliminate any risk for the bank, and even enable the new loan to BBB to be made. Hearing however that you got a C+ in ComLaw 315, and therefore “know your stuff” she seeks your advice.
What you need to do
You are required to prepare a two page report for Aphrodite to assist her in deciding what to do. The report should cover the following matters:
1. What problems could arise if Etruscan proceeds to obtain the guarantees mentioned above (or conversely, if it doesn’t obtain them);
2. How the problems can best be overcome (or the risk minimised);
3. Any other issues that you believe need to be raised (and are within your area of competence).
The font should be Arial, 11 point and justified.
You may use the Business School’s APA referencing guide. Any clear referencing system is acceptable.
Due Date
The report is due on Tuesday 22 May
4pm.
Hand your report in (stapled hard copy) to the Business School Bookshop. The report is
worth 15% of your final grade.
Penalties
If you fail to submit your assignment assignment by the due date a penalty of one mark per day will be deducted from your assignment mark until you hand it in.
Notes and FAQs
You should only consider the areas of law that have been covered in the guarantees’ portion of the course. You may however choose to do additional research in respect of these areas. So, for example, you should
not
consider the Credit Contracts and Consumer Finance Act 2003. But you
might
refer to cases on undue influence not covered in lectures.
Spelling and grammar are important for this report (as they are in business). If your written communication skills are not up to scratch you will lose marks. If you have concerns about your written communication, Student Learning offers a number of workshops to help you.
Who are you writing the report for? Your report is addressed to Aphrodite. You can write in the first person (i.e., “I” or “we” are…) or in third person.
Report
[two pages]
Remember you need to use headings in your text as well as paragraph numbers – makes it easier for people to read.