McGuinness v Norwich and Peterborough Building Society

For a creditor’s bankruptcy petition, a debt for a liquidated sum must be a liability pre-ascertained by the agreement, including through contractual machinery that produces a figure. A damages claim does not become liquidated merely because the loss is readily calculable.

A guarantee which merely undertakes that the principal debtor will perform gives rise to damages and cannot found such a petition. However, the proper construction of a guarantee may impose a direct or concurrent obligation to pay. A principal-debtor clause may confirm that character. The requirements of section 267(2)(b) of the Insolvency Act 1986 are then satisfied.

The Society obtained a bankruptcy order against Mr McGuinness on a statutory demand for more than £1.2 million due under a guarantee of his brother’s mortgage liabilities.

Mr McGuinness contended that the guarantee was a "see to it" obligation. He submitted that it created only an unliquidated claim for damages and could not found a creditor’s petition under section 267(2)(b) of the Insolvency Act 1986. The Deputy Registrar rejected that argument. Briggs J dismissed the appeal: [2010] EWHC 2989 (Ch).

The central issues on this second appeal were the meaning of a debt for a liquidated sum and whether clauses 2.2, 2.3 and 4.2 of the guarantee made Mr McGuinness liable in debt.

1. Appeal dismissed. A petitioning debt under section 267(2)(b) of the Insolvency Act 1986 must be for a liquidated sum. It is a pre-ascertained liability under the agreement. The amount may be produced by an agreed formula or machinery, but a claim for damages remains unliquidated even where the calculation is simple.

2. The broader definition of a bankruptcy debt for proof purposes in sections 322 and 382 did not govern the more restricted requirements for a creditor’s petition. A "see to it" guarantee is an undertaking that the principal debtor will perform. Following the analysis in Moschi v Lep Air Services Ltd [1973] AC 331, breach gives the creditor a claim in damages measured by the principal debtor’s default. Such a liability is not a debt for a liquidated sum.

3. Hope v Premierpace (Europe) Ltd [1999] BPIR 695 was correctly decided on its facts. It established only that the claims then relied on were not for liquidated sums. The court also expressed the unnecessary, but reasoned, view that "debt" in section 267 may include a contractual claim for liquidated damages.

4. On its proper construction, clause 2.2 did not merely promise that the borrower would pay. The separate indemnity in clause 2.4, and the provision in clause 2.3 for sums due under the guarantee to be payable on demand, supported a direct promise by the guarantor to pay the mortgage liabilities. That was a liability in debt.

5. Although not necessary to the result, clause 4.2 reinforced that conclusion. It made the guarantor’s relevant obligations those of a principal debtor. His liability was concurrent with that of the borrower, and the Society could proceed against him without first exhausting its remedies against the borrower. The petition was therefore valid and the bankruptcy order stood.

• Court of Appeal (Civil Division): Dismissed the second appeal and upheld the bankruptcy order.

• High Court of Justice in Bankruptcy: Briggs J dismissed the appeal from the bankruptcy order: [2010] EWHC 2989 (Ch).

• Deputy Registrar: Rejected the challenge to the Society’s petition and the bankruptcy order was made on 24 February 2010.