Signature Living Hotel Ltd v Sulyok & Anor

The court considered two applications for injunctions to restrain presentation of winding-up petitions founded on statutory demands based on corporate guarantees. The central legal questions were whether the deeds of guarantee had been validly executed as deeds in accordance with sections 43–44 of the Companies Act 2006 and, if not, whether the instruments could nonetheless be enforced as simple contracts supported by consideration. The court held that, although the guarantees did not comply with the formalities required for execution as deeds under section 44, they were enforceable as contracts because the agreements were part of interlinked commercial transactions and were supported by consideration (including by clause 9 of the loan agreements). The judge therefore found no bona fide substantial dispute on the enforceability of the liabilities and dismissed the applications for injunctive relief.

Background and parties: Signature Living Hotel Limited (the applicant) sought injunctions to restrain two respondents, who had served statutory demands, from presenting winding-up petitions. Each statutory demand relied on a corporate deed of guarantee given in support of loans to an associated borrower company. The guarantees were signed by the sole recorded director of the applicant but were not witnessed.

Nature of the application: The applicant sought injunctive relief on the grounds that the guarantees were unenforceable because they were not validly executed as deeds and did not comply with section 44 of the Companies Act 2006.

Issues framed by the court:

• whether the guarantees were invalid as deeds for want of execution formalities under sections 43–44 of the Companies Act 2006;
• whether, despite defective deed formalities, the guarantees could subsist and be enforced as simple contracts if supported by consideration and signed by a person with authority;
• whether the applicant had raised a bona fide substantial dispute such as would justify restraining presentation of a winding-up petition.

Evidence and procedural posture: The applications were first instance, heard ex tempore. The respondents relied upon witness evidence and contemporaneous documents showing the loan transactions, the terms of the loan agreements (including clause 9 on security) and corporate records. The applicant relied on a witness statement asserting invalid execution and non-compliance with deed formalities.

Court’s reasoning: The judge accepted the respondents’ submission that a document intended to be a deed but not executed with the necessary formalities can nonetheless take effect as a simple contract where the other contractual requisites (authority to sign and consideration) are present. The court relied on established practitioner authority (Andrews & Millett: The Law of Guarantees) and the decision in Lloyds TSB Bank plc v The Dye House Limited as supporting that proposition, and treated the Mercury Tax Group decision as distinguishable. On the facts the loans and guarantees formed part of interlinked commercial transactions; clause 9 of the loan agreements showed that security (including the guarantee) was integral to the loan. The guarantees were signed by the director who had authority and the transactions were supported by consideration, so the instruments were enforceable as simple contracts. Because that disposes of the substantive question of liability, there was no bona fide substantial dispute justifying restraint of petition presentation.

Result: The applications for injunctive relief were dismissed. The judge noted the Insolvency Practice Direction 2018 guidance about multiple petitions but left consequential matters for another occasion.

The applications are dismissed. The court held that, although the guarantees were not executed with the formalities required for deeds under section 44 of the Companies Act 2006, they were enforceable as simple contracts because they formed part of interlinked commercial transactions, were signed by a person with authority and were supported by consideration. Consequently there was no bona fide substantial dispute to justify restraint of presentation of winding-up petitions.