The Expert Podcast

So can a surety bond extend after a bankruptcy. There's an interesting case You're working with Way through the courts About a surety bond that was issued by a company that's involved with a bankruptcy And the legal question at hand is is it executory the contract for surety. And part of it is because there's three parties to a contract The principle the obligee and the surety. And if one of those parties becomes insolvent or bankrupt Does that end the contract. And part of the question is whether or not that contract still has important Parts of it that are not fulfilled. An executer or contract is one where they're still important parts of that contract that need to be completed. things that are still remaining that are important. And in this case there was a company that went bankrupt and The surety claimed that the bond was over ended. And the surety bond provided that the debtor will pay premiums and the insurance company provide the bonds But the company went bankrupt. The debtor sought first day relief to continue the bond program describing as a critical service it must continue for the debtor to remain a going concern. The bankruptcy court approved the continuing of the program and the debtor continue to make payments. So The bankrupt company kept making their payments The bond company said no these bonds are non assumable non assignable and financial accommodation so they can be revoked. So that's the argument does the bond Continue through the bankruptcy even if you're paying The premiums. The takeaway from this is if you are A company That's relying on a bond As an obligee from a third party the principle You need to look at what would happen if they went bankrupt. and in this case If the case law prevails you'd still be protected as long as those Bond premiums are continue to be paid. But you may want to have backup Collateral you may want to have a backup facility In case the bond is invalidated. and you're relying on it for performance for Quality of workmanship warranty of service Or whatever that bond is providing you as coverage or indemnification As obligee. The bankruptcy of one of your vendors or clients or somebody you're relying on couldn't validate a bond because it's a three-party bond That could have An adverse financial impact on your company. So get good legal advice from an attorney Figure out what your financial imperatives are for getting a surety bond And just make sure that your relationship With the principal issuing you the bond Is such that if for some reason That bond is invalidated You have some kind of backup or you filed the case law to know that The surety bond We'll remain intact.