Small but growing company with three working shareholders. We advised the company on:
- Shareholder Contingency including Current Accounts;
- Key Person to cover the disruption of the loss of a shareholder;
- Disability Income so that shareholders knew income would continue after an agreed period but the company would not have to fund it.
This was documented in an Agreement so there would be a predictable and certain outcome.
This had been put in place with only two shareholders and continued when another bought in. One shareholder resigned and new shareholder “Trevor” bought into the company.
Mainstay prepared an amended Agreement and explanatory report and discussed in detail with Trevor.
He and his partner were very reluctant, as for various reasons they felt that he did not need insurance. He was relatively young and fit and financially secure.
We pointed out that this was part of the shareholding arrangement and that this provided protection for all parties, not just himself.
After a number of discussions, and the fact that it was not an optional matter because of the potential effect on all shareholders, he proceeded with the Shareholder Succession and Key Person cover.
All of the Agreements were signed by the appropriate parties such as Trustees of Family Trusts, and the insurance policies were assigned to the relevant parties, including an Independent Trustee for the Shareholder Succession.
Less than a year later, Trevor was diagnosed with Cancer which would be terminal.
A claim was made under the Trauma section.
The claim was paid to the Independent Trustee for Trevor's shareholding and current account. This pre-agreed amount under the Shareholder Succession Agreement was significantly in excess of the market value. The Independent Trustee coordinated the payments and transfer of ownership.
Payment was made to the company for the Key Person cover.
The signed Agreements meant that all issues were resolved within a short period and the insurance policies meant that all parties received the pre-agreed substantial sums.
Craig is a Director and Shareholder with three others of a medium sized graphic production company.
Craig at age 58 suffered a heart attack in November 2003 and was hospitalised.
Mainstay was notified and started the claim process with approval gained within three weeks. The claim involved Disability
Income plus Key Person cover and also Shareholder Succession cover.
Craig’s disability income covered his time in hospital and his recuperation time until he elected to return to work. There was then also a partial disability payment made while he gained his strength and built up to the stage of being able to resume his full duties.
The Key Person Trauma cover was paid directly to the company and provided funding for Locum expenses and some substantial additional costs incurred as a result of Craig’s unplanned absence.
The Shareholder Succession Trauma cover was paid to the Succession Trustee who under the terms of the Agreement paid an initial sum to Craig with the remainder being held in trust for a period of time as he had elected to return to work.
Within the agreed election time Craig was deemed to be operating at an acceptable level according to the other shareholders. The remainder of the funds held by the trustee were then distributed as directed in the agreement.
The agreement remains in place for any subsequent claims.
The total payout was $443,555 and as the company has been in a rapid growth phase the funds were applied within the business which has maintained its momentum when the alternative would have been a more serious setback for Craig and his company.
Sole owner of a substantial Private Company.
As business was developing the Company insured him as a key person primarily to ensure debt was reduced.
In 2003 refinanced secured Line of Credit and Bank requested $15 million additional cover.
Following presentation of detailed financial and medical information, cover was put in place.
Within 2 years client was killed in an accident.
Because of the sums (in excess of $20 million) legal advisers from a number of parties became involved.
Mainstay advised the client’s legal advisers as to the process and issues that would be addressed.
The accident involved an activity that the client had taken up after the policies had been issued.
Because of our detailed record keeping and processes Mainstay was able to provide the relevant parties with a full record of all the various steps taken with regard to the policies.
This included full record of the application process which supported the valid claim, especially regarding participation in the activity in which he subsequently died.
This information was supplied to all legal advisors as a complete record on a CD.
Following a full investigation all Insurers paid the various claims.
Mark, together with his wife June, was a Director & Shareholder of a small and successful communications company.
Mark at age 27 was taken ill in 1994 and was unable to work.
The claim involved Disability Income cover and the insurer accepted the claim although it was some time before the correct diagnosis of Chronic Fatigue Syndrome was confirmed. Recovery can take a long time. Sometimes the individual concerned never recovers.
The business was attractive to a competitor who paid a good price for it, which is not the usual outcome in such circumstances.
Over the subsequent years we have been active in ensuring that agreement has been reached with the insurance company over the degree of part time work. This has at times involved significant negotiation. While the policies are comprehensively worded, it is impossible for them to clearly spell out every possible variation on each insured illness.
Recently Mark and June decided to establish a new business that will allow for flexible hours and involvement suited to Mark’s continuing health issues. We instructed an insurance Actuary (actuaries assess the risk and cost-benefit ratios of insurance policies) to calculate a final payment on a lump sum basis. Subsequently we negotiated with the insurer a fair settlement that is tax efficient.
Mark has received payments in excess of $600,000 over a 10-year period. This has replaced his lost income and allowed Mark and June to establish another more suitable business.
These payments, without our timely and ongoing involvement would have been substantially less or may not have occurred at all.
Warwick was one of two Director/Shareholders in a rural transport business. He was well known in the district, and his personality and reputation enabled him to secure referrals from stock agents, stock buyers and freezing companies. His fellow Director/Shareholder was from an urban background and didn’t relate as well as Warwick did to farmers. In the event of Warwick’s departure, it was uncertain whether he would retain the company’s present customers and find new ones.
Warwick took his fellow Director/Shareholder by surprise one day when he announced that he was going to take early retirement the age of fifty-nine, rather than wait until he was sixty-five.
Some years earlier, with assistance from Mainstay, Warwick and his fellow Director/Shareholder drew up a contingency agreement that provided for, amongst other things, the early departure of a Director/Shareholder. They knew that the firm’s bank might take the view that Warwick was the stronger of the two Director/Shareholders, and might insist, if he were to take leave the company, on retaining his personal guarantee against possible loss of earnings. They also knew that if Warwick were to insist in turn on being free to spend his savings in retirement without being bound by the guarantee, his former Director/Shareholder might be obliged to wind the business up. While no firm can take out insurance against the sudden retirement of a Director/Shareholder, Mainstay was nevertheless able to devise a contingency agreement that made it possible for Warwick to retire and hasten the discharge of his personal guarantee, while enabling the other Director/Shareholder to keep the business running.
Neil Rundle was one of two Director/Shareholders in Mainstay Financial Services, a forerunner to Mainstay Limited.
Neil’s fellow Director/Shareholder, Mike, developed a heart condition and eventually died.
Being firm believers in the importance of preparing for contingencies, Neil and his fellow Director/Shareholder devised an agreement that harmonised with their shareholders' agreement. They made it possible for Neil to buy Mike’s shares in the business by arranging for the life cover taken out on Mike to go to the estate on his death, in part payment for his shares. The balance was to be paid over a pre-determined period and at a pre-agreed price. The payment period and interest rates were not punitive, and could not be disputed. Thanks to the firm’s contingency agreement, the arrangement over life insurance enabled Neil to buy Mike’s shares in the business and keep it running without having to pay more than he could afford