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The devil in the detail: is a liability under a personal guarantee a debt payable immediately?

In July 2019, ICC Judge Barber in Martin v McClaren Construction Limited [2019] EWHC 2059 (Ch) was tasked on an application to set aside a statutory demand under Rule 10.5(5)(d) of the Insolvency Rules 2016 (“IR 2016”)...

…with providing yet further guidance on what constituted a ‘debt for a liquidated sum payable immediately’ for the purpose of s.268(1)(a) of the Insolvency Act 1986 (“the IA 1986”).

The statutory demand for £7,099,670.34 had been served on the Chairman of Southend United Football Club, Mr Martin. Mr Martin was also the Chief Executive of ‘Martin Dawn Plc’ (“the Company”) and in late 2013, he provided a personal guarantee to McClaren Construction Limited (“McClaren”) for his own liabilities and those of the Company and two other related companies under a number of construction-related contracts (“the guarantee”).

The statutory demand was based on sums allegedly owing under the guarantee. However, Mr Martin contended the debt alleged was not ‘payable immediately’. The basis for this contention rested on a term in the guarantee that Mr Martin was only liable to make payment thereunder following a written demand for payment. It was said that a written demand was a contractual pre-requisite for a debt under the guarantee to become ‘payable immediately’ for the purpose of s.268(1)(a) IA 1986.

There had been no written demand served prior to the statutory demand and Mr Martin contended that the statutory demand could not be ‘a written demand’ under the guarantee in itself as the debt had to already be due and payable when the statutory demand was served: TS & S Global Ltd v Fithian-Franks [2007] EWHC 1401 and Wallace LLP v Yates [2010] BPIR 1041.

The court was invited to exercise a residual discretion under r.10.5(5)(d) not to set aside the statutory demand on the basis that there was no injustice that needed to be cured by doing so (McClaren relied upon guidance given by Nicholls LJ in Debtor (No.1 of 1987), Re [1989] 1 WLR 271).

ICC Judge Barber declined to do so:

  1. McClaren had failed to establish the statutory presumption of insolvency under s.268(1), namely that the debt was payable immediately, which was a pre-condition to presenting a bankruptcy petition;
  2. Even by the hearing (8 months after the statutory demand), McClaren had not served a formal demand under the guarantee;
  3. McClaren had failed in substance and not simply form and the court should be slow to exercise that residual discretion when the essential pre-requisites of ss 267-268 had not been met.


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