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Guarantees – don’t forget to issue a demand!

23 Oct 2019

 

 

The High Court recently considered its discretionary power to set aside a statutory Demand in the case of Martin v McLaren Construction Ltd.

 

The creditor had issued a £7m statutory demand based on a guarantee given by the applicant.  Under the terms of the guarantee, the applicant would only become liable for the debt following the service of a written demand for payment that remained unsatisfied.

 

As the applicant had received no such demand he made an application to the court under Rule 10.5(5)(d) Insolvency (England and Wales) Rules 2016, i.e. the court’s discretionary power to set aside a statutory demand if it is satisfied that the demand ought to be set aside.

 

The creditor had various arguments, but the relevant ones for the purposes of this article are that (1) the applicant had been served with an earlier statutory demand, and (2) the guidance in Re a Debtor (No. 1 of 1987) set out that a statutory demand should only be set aside if there was an injustice that must be cured.

 

Despite these arguments, the court determined that the demand ought to be set aside as, fundamentally, the creditor had failed to fulfil the condition under section 268(1) Insolvency Act 1986 that the sum due must be payable immediately.  As no written demand for payment had actually been made to the applicant (as required under the guarantee), the debt was not payable immediately. 

 

This case serves as an important reminder to creditors serving a statutory demand against an individual who has provided a guarantee: it is essential that all conditions under the guarantee are met and that the sum due is payable immediately.

For more information please do not hesitate to contact Alexandra Withers on 0191 232 0283 or ajw@srflegal.co.uk.

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