When a personal guarantee isn't enforceable by statutory demand

Directors entered into all monies personal guarantees (PGs) for in relation to a facility granted to Crouchland Biogas Limited (CBL). An officer of the finance company made a number of representations that the directors claimed induced them to enter into the PGs.

There were Guarantee Representations (including the suggestion that the guarantee was a simple formality that would not be called on) and Funding Representations (including that existing personal finance in a related company could be refinanced, and that the facility would enable draw down to meet the capital expenditure of CBL’s business plan).

Over a period of four years to June 2017, the finance company advanced over £37m to CBL. CBL entered administration in August 2017, before going into compulsory liquidation in early 2019. The finance company assigned the debts due from CBL and the benefit of the PGs to West Sussex Agri Limited (WSAL). WSAL proceeded to serve statutory demands on the directors. The directors applied to set the statutory demands aside and alleged that they had only entered into the PGs on the basis of the Representations. While the judge found this implausible in relation to the Guarantee Representations, she accepted that the directors had been induced to enter into the PGs on the basis of the Funding Representations. On that basis, the statutory demands should be set aside and WSAL was ordered to pay costs on an indemnity basis.

WSAL appealed the decision arguing that the directors had affirmed the PGs (by drawing down further sums after it was clear the Funding Representations were untrue). However, there was nothing to indicate that the directors were aware of their right to rescind the PGs.

Given that WSAL has effectively succeeded in demonstrating that the Guarantee Representations could not be relied on, and it is viable to launch bankruptcy proceedings without a judgment, the Court of Appeal concluded that WSAL should not have been ordered to pay the directors’ costs on an indemnity basis.

Luttman-Johnson, Re [2021] EWHC 2580 (Ch)

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