Question

A corporate borrower pledged its warehouse inventory as primary security to secure a working capital loan. Without informing the bank or obtaining written permission, the company disposes of the entire pledged stock in the open market and uses the proceeds for personal investments while defaulting on loan payments. Under the framework presented, how is this action categorized?

Q: Answer-A corporate borrower pledged its warehouse inventory as primary security to secure a working capital...

Why Option A is confusing Selling pledged collateral without permission is a serious breach of loan covenant and financial misconduct, but unless accompanied by initial forgery or fraudulent misrepresentation at the time of loan setup, it is explicitly classified as a trigger for Willful Default. Why B is correct A borrower who has capacity, divertssiphons funds, or disposes of securities without permission triggers classification as a Willful Defaulter.