The liability of a guarantor mirrors that of the borrower

Relying on the terms of the personal guarantee given by Maindonald in 2019, the petitioner served a statutory demand before the presenting a bankruptcy petition in August 2023. The petition debt was £835,959.12 (being the guaranteed sums, plus interest, costs and expenses).

Maindonald suggested that an IVA was to be proposed; this proposal was the basis of a failed application to adjourn or stay the petition.

At the substantive petition hearing, Maindonald objected to the petition on the basis that:

1. The guarantee had been discharged by subsequent changes to the borrower's liability.
   
   Whilst it was accepted that the loan facility had been subject to numerous variations, it wasn't accepted that these “were substantial and capable of adversely affecting” Maindonald (as guarantor). Not only were the contractual facility arrangements after the amendments well within the scope of the guarantee, but Maindonald had himself negotiated and signed the variations (as sole director of the company). The court found that it wasn't realistic for Maindonald to agree the variation in his capacity as a director, but not agree to it in his capacity as guarantor of the company’s liability; in the circumstances the signature of the Maindonald on the Deed of Amendment also conveyed his consent as guarantor.
    
2. There was a counterclaim which goes to set-off or reduce his liability.
   
   In considering numerous alleged counterclaims, the court noted that the facility letter expressly excluded the company's right to set-off any counterclaim against its liability to pay. It is established law that a "no set-off" clause does not operate to exclude a counterclaim which is relied upon to dispute a bankruptcy petition; however, in this instance Maindonald couldn't set-off against his own guarantee liability, because any set-off would belong to the company, as the entity with the counterclaim. The liability of Maindonald, as guarantor, mirrored that of the borrower. Even if this analysis were incorrect, such was the indebtedness of the company that even had the counterclaim had merit, there would still have been a debt due to the lender that exceeded the level of the guarantee.

The court concluded that none of the prospective defences that Maindonald sought to put forward had any real prospect of success, and the petition must succeed.

Downing LLP v Maindonald [2024] 4 WLUK 293