Signature Living Hotel Ltd v Sulyok & Anor

A document intended to be executed as a deed may nevertheless be enforceable as a simple contract where the deed formalities were not satisfied, provided the ordinary contractual requirements are present. Those requirements include authority to bind the company and consideration. The court may restrain presentation of a winding-up petition where the petition would be an abuse of process, including where it is bound to fail in law. It will not grant relief merely because the company disputes the debt. A guarantee forming part of interlinked loan transactions may be supported by consideration even where the loan preceded execution of the guarantee.

Signature Living Hotel Limited applied for injunctions restraining Andrei Sulyok and Roxana Monica Cocarla from presenting winding-up petitions based on statutory demands. Each demand relied on a guarantee given by the applicant in connection with a loan to an associated company.

The guarantees had been signed by the applicant’s sole director but were not witnessed. The applicant argued that they were invalid deeds and could not operate as contracts. The respondents contended that the guarantees were enforceable simple contracts, supported by authority and consideration. The central issues were whether the defective deeds could be enforced contractually and whether there was a bona fide dispute on substantial grounds.

1. The applications were dismissed. There was no basis for restraining presentation of winding-up petitions because the guarantees were enforceable and the respondents were creditors.

2. The execution formalities in sections 43 and 44 of the Companies Act 2006 were not satisfied. The guarantees were therefore ineffective as deeds. The absence of proper attestation did not, however, prevent them from operating as simple contracts.

3. The court followed the principle exemplified by Lloyds TSB Bank plc v The Dye House Limited [2005] EWHC 1998 (Comm): where an otherwise complete contract of guarantee was intended to be embodied in a deed but the formalities failed, the creditor could still enforce the contractual agreement. The court regarded the relevant observation in R (On the application of Mercury Tax Group) & Another v HMRC [2008] EWHC 2721 (Admin), [2009] STC 743 as unpersuasive and declined to follow it.

4. The guarantees were made by the applicant’s director, who had authority to bind the company under section 43(1)(b) of the Companies Act 2006. They were also supported by consideration. The loans and guarantees formed part of interlinked transactions, and the giving of the guarantees was expressly required by the loan agreements. This was so even though one loan had been advanced before the relevant guarantee was executed.

5. The court accepted that injunctive relief may be granted where a winding-up petition is bound to fail as a matter of law. The applicable principles, summarised in Angel Group Limited v British Gas Trading Limited [2012] EWHC 2702 (Ch), [2013] BCC 265, require a bona fide dispute on substantial grounds. No such dispute existed here. The court additionally drew attention to paragraph 9.2 of the current Insolvency Practice Direction concerning searches for pending petitions and the costs risk of presenting a second petition.