Newsletter
COMPANIES CANNOT ASSUME OTHERS' DEBT
The Company Act prohibits a company from acting as a guarantor of any kind, except as permitted by law or its articles of incorporation. The purpose of this provision is to ensure the stability of the company's finances and to prevent irregularities.
As for a company assuming the debt of another, the effect on the company's finances is in fact no different from that of acting as a guarantor. Accordingly, in a recent judgment, the Supreme Court held that since acting as a guarantor is prohibited by the Company Act, and the effect of debt assumption is more serious than that of providing a guarantee, debt assumption should equally be prohibited under the Company Act.