In any loan agreement, debtors (debt parties) will be charged with an obligation to provide collateral of repayment of debts owed to be submitted to the creditors. There are two kinds of collaterals; those are material and individual collaterals. When the debtor does not have the goods or valuable assets that can be charged as material collateral (encumbrance, fiduciary, pledge or mortgage), an individual guarantee or an underwriter can be the best solution.
An Individual guarantee or an underwriter (borgtocht) under Section 1820 Book of the Law of Civil Code is:
A form of agreement where a third party for the sake of the interests of creditors, committed itself to fulfill the engagement/commitment of debtor, if the debtor does not meet the agreement.
Based on the explanation above, it can be understood that an underwriting is an agreement of accessoir or the continuation of an agreement as a result of the existence of a principal agreement. It is similar to other collateral in general. So, in the absence of a principal agreement (such as the agreement of debts) an underwriting or borgtocht may not be existing.
An underwriting should be stated explicitly. In order to provide even a better protection for creditors, the underwriting should be made in a notary deed. Therefore, the presence or absence of the underwriter cannot be guessed or assumed. The closeness of kinship between two people does not automatically give rise to an underwriting. A separate agreement Needs to be made to confirm this.
A common underwriting agreement is the majority shareholders in a company volunteering to be an underwriter or guarantor. But they do not act forever as guarantors. That is private (personal guarantee). A legal entity is also possible to act as a corporate guarantee depending on the rules accommodated in the articles of association of the legal entity.
The creditors need to do background checks and inspections in advance, to determine whether the parties put themselves forward as the guarantors are really worthy and capable to be the guarantors. So, when the debtors are negligent, the creditor position remains secure and the creditors can receive payment of receivables.
A guarantor or a new underwriter is charged with an obligation to pay the debts of the debtor, when the debtor has been negligent in his debt payments. In fact, under Article 1831 of the Civil Code, the creditor must first seizure and sale the assets held by the debtor to obtain repayment. It is a privilege owned by the underwriter.
However considering the rules on underwriting regulated in Book III of the Civil Code, the provisions can be set aside in accordance with the agreement between the parties. Therefore, generally in an underwriting agreement, the underwriter will be required to waive these privileges, specifically the necessity to conduct in advance the seizure and sale of assets belonging to the debtor.
Then what is the impact of waiving the privileges?
In such circumstances, the underwriter cannot demand to seize and sale the assets belonging to the debtor before the creditor charging against him.
Therefore, the underwriter should consider the waiver of privilege carefully. Because when the party has decided to waive his privilege, but the debtor neglect it, the underwriter is obliged to repay the debt owed by the debtor.
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