Personal guarantees and bankruptcy orders

Frequently, debtors argue liabilities arising under personal guarantees don't create liquidated debts. There's good reason for this because under section 267(2)(b) IA 1986, only a liquidated debt can form the basis of a bankruptcy petition.  

In this case, a bankruptcy order was made based on a liability arising under a guarantee contained in an SPA. A company had failed to make instalment payments that were due and the relevant provision pinning liability on the debtor said the debtor “guarantees to each of the Seller and [the first respondent] repayment of the loans by the Company”. The debtor argued this didn't create a guarantee for various reasons, but he also asserted it didn't create a liquidated debt even if it did.  

The Court of Appeal in McGuinness v Norwich and Peterborough Building Society considered two categories of guarantees create a liquidated debt. They were:

• Conditional payment obligations (defined as a promise to pay if the principal debtor fails to pay)
• A clause that created a concurrent liability

“See to it” guarantees where a party undertakes that the principal will perform its obligations, and indemnities are different. Those give rise to liability in damages. Ultimately whether the clause falls into one category or another falls to be determined by construction of the term.  

In this case, the court accepted the wording of this clause on its own was ambiguous but that was dispelled when read alongside two other clauses, one of which referred to the debtor being liable to repay the loan and another which gave the debtor an express right to set off “against any repayment of the loans due from [the debtor], any sums…”.  

Neither of those clauses would make sense at all unless the debtor already had primarily liability to pay the loan. This was a conditional payment obligation, and a liquidated sum had, therefore, fallen due.

Matthews v BSN (SW) Property Ltd and another company [2025] EWHC 1650