Business Services | Case Study

Ask yourself, how would you handle the following situation?

Personal Services You have just received a telephone call from Ellie who is married to Peter, your business partner. Ellie informs you that Peter has just passed away after suffering a massive heart attack.

By way of background, you & Peter own a successful manufacturing business, recently valued by your accountant at $2 million. You oversee the workshop, whereas Peter is responsible for attracting new business as well as overseeing the administration and human resources side of the business. The business has a loan of $1 million from one of the major banks. The loan is secured by a second mortgage on each of your residential properties as well as joint and several guarantees.

Do you have any definite plans to address the following?

(1) Notify Staff
• Deal with the news, as Peter being the HR manger was well liked
• Allay their fears that the business will still continue and that their jobs are safe

(2) Notify and set up meetings with key Business Contacts:
• Banks
• Lawyers
• Accountants

(3) Financials
• How will Ellie survive without Peter’s income
• Does Ellie have enough money to pay their debts immediately
• What will happen with Peter’s car lease
• Bank Guarantees – Clause in Loan Agreement states that you must notify the Bank IMMEDIATELY upon the death of either party
• Will the bank freeze the working account, if so do you have a backup plan
• Will the bank review their lending facilities and will they recall the $1 million loan?
• Will creditors stop all future credit and demand cash on delivery
• Will debtors delay payments
• Will Ellie want to paid out her $1 million for Peter’s share of the business
• Can you afford do to this – if not, what will happen

(4) Peter’s job position
• Will he be replaced immediately
• Who will be responsible for generating new clients
• Who will be responsible for looking after the admin & HR
• How long will it take to find a replacement for Peter
• Will the replacement be as competent as Peter was or do you need to look for 2 replacements Sales & Admin/HR

(5) Other considerations
• Your emotional capacity to handle your own & Peter’s job in the short-term, with all the ongoing mayhem
• Your moral and ethical obligation to Ellie & how this may affect staff morale & productivity (if they stay with you)
• Will Ellie want to continue to own the 50% share in the business and take an active role in the business? If this were the case, would Ellie have the same passion for the business and would she have the smarts to know which direction it should be headed and can you work with her
• Will Ellie be concerned you may shut up shop and start up a competition business

The solution is to have a legally binding Business Will in place together with Life Insurance for $1 million on yourself and Peter. The business will stipulates in the event of either party dying, then their 50% share will be transferred to the other partner in consideration for the $1 million insurance payout.

Hence in your case Ellie will receive $1 million from the insurance payout and you will now own 100% of the shares in the manufacturing business. Ideally the business will also have insurance in place to pay out the $1 million debt. Further more, the business should also have extra insurance in place to give it ready funds to overcome the time involved in finding a suitable replacement for Peter and the possible downturn in business.

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