when company encounters difficulties, the partners can carry out a debt waiver in favor of the company, often accompanied by a clawback clause. This operation allows the company to reduce the amount of its debts and improve its equity.
Read this article on the waiver of debt of partners for more details.
When a company is going through a bad patch, its associates can carry out a renunciation of their claim in its favour, possibly accompanied by a clawback clause. This action allows the company to reduce the amount of its financial debts and to improve its financial capacity, and therefore its equity.
See this article on the waiver of claims by partners to find out more.
In a previous article, we looked at the functioning of the associate current account, and we have seen what were the conditions for a partner to make contributions and how they could be reimbursed according to the terms contained in the convention.
Partners who have made these contributions may, for various reasons, be led to give up, partially or entirely, their associate current account for the benefit of society. This decision can be made for the purpose of:
For the beneficiary company :
This action makes it possible to “clean up” the bottom of the balance sheet and to limit the loss or to achieve a profit.
For the partner who quits :
This action does not offer any advantages for the partner because he loses the sums he has invested. However, with a clawback clause, it is possible to recover all or part of the abandonment, if the company's situation improves.
The better fortune repayment option clause allows the partner who provides an associated capital waiver to be fully or partially refunded the debts initially assigned, if the state of the company allows it. The abandonment is therefore not final, because the company will be able to reimburse the funds if his condition improves.
Please note: : the partner who abandons the partner's capital with the option of reimbursement in better fortune does not really change his situation, the abandonment being generally granted to a company in difficulty which cannot, in any case, reimburse its contributions.
When the clawback clause applies, the refunds made are considered as an exceptional expense deductible from the profit of the company.
Conclusion : the partner who provides an abandonment of associated capital must insert a better fortune repayment option clause in the abandonment agreement, which he signs.
The abandonment of a partner's current account is not subject to any mandatory formalism, however it is highly recommended to materialize this operation by a document.
The partnership current account abandonment agreement signed between the company and the member concerned must indicate the amount of the debt abandoned and, if provided, include a return to better fortune clause.
Suggestion : if the sums at stake are significant, it is recommended to call on a lawyer to draw up the contract and obtain advice on this operation.
