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Lenders can be real bastards

My wife spent Friday in a crisis meeting, one of our subsidiaries has a problem.  In the course of business, prior to our purchase of a significant percentage of the company, it entered into an unfavourable loan agreement that could not be prepaid.  The loan terms were usurus, and frankly should be illegal.

Friday morning this lender had called its loan because the insurance on the primary building had been renewed a day late.  Before I tell the end of the story, you should  know that this was not only not intentional but entirely the fault of the insurance company that had made, we thought, a clerical error.  Not only did the insurance company recognized the error but immediately apologized and provided a letter for lenders.  In other words, the error was not that of our subsidiary but by a third party.

This notice of loan default and immediate acceleration gave until Monday to repay the loan in full with interest and a penalty fees.  Again, normally a borrower would have 30 days to cure, and any third-party error would be excluded, but the lender was less than an honourable person, took the low road.  It should be noted that the lender is a family member to the two previous owners.

In effect, the lender was asking for immediate repayment by forfeiture of the business. Again, that was a condition of the loan.  Something that is almost illegal, but this was a family loan and as such the rules can be different.  I want to be clear, this was a technical default, interest and the debt were current, this was a sneaky way for him to take possession of these assets.

Yesterday morning, was the meeting with the lender.  Apprarently, it was almost Dickensian, they came in talking loudly as if already the owner of the business.  Let's just say they were surprised to see my wife in the conference room with our attorneys.  There was the usual politeness (not really), where my wife presented him with a bankers check for the full amount of the loan, interest and "penalties", and a quitclaim deed.  My wife was happy since the interest rate was far too high (more than 20%) and had a clause that allowed the lender to transform the loan into shares.  The default had removed that last clause and by seeking immediate repayment we had complied with the terms of the acceleration notice.

It gets worse for the now ex-lender, it seems that the insurance company found evidence of third party involvment, were fraudulent documents were sent to the insurnace company by others asking a change in the start date.  The ex-lender was served with a lawsuit from the insurance company for fraud.  We have no idea how this will end.  There is an issue of fraud, misrepresentation and reputation for the insurance company.  This is of no concern to us!

Note:  Timeline is absolutely correct.  My wife only found out about the insurance company's lawsuit because our company was named in the suit as those who had been the party to be harmed by the change in date (therefore we were notified of the lawsuit).  

Note2:  Before you Americans start, please note that we would have to demonstrate "harm", the truth is that the company is financially much better off without this lender. 

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