Gareth Wyn Jones v City Electrical Factors Limited

A creditor’s bankruptcy petition requires a debt for a liquidated sum under Insolvency Act 1986, section 267(2)(b). A “see to it” guarantee and an indemnity ordinarily create liability in unliquidated damages, even where the underlying debt is undisputed and readily calculable. The court cannot expand “liquidated sum” by invoking proportionality or avoiding supposedly unnecessary litigation.

The proper classification depends on construction of the guarantee as a whole. A guarantee may nevertheless impose a conditional payment obligation creating a debt where, in context, the guarantor promises to pay on demand sums owed by the principal debtor. Standard contractual principles apply, subject to strict construction of suretyship obligations.

The respondent presented a creditor’s bankruptcy petition based on two personal guarantees given by the appellant for debts owed by a company to an electrical-equipment supplier. The County Court at Caernarfon held that both guarantees created liabilities for liquidated sums and dismissed the grounds of opposition, while adjourning the petition because the respondent had not filed compliant creditor documentation.

On appeal, the respondent conceded that the first guarantee could not support a bankruptcy petition but relied on a respondent’s notice concerning the second guarantee. The central issues were whether the guarantees created debts for liquidated sums under section 267(2)(b) of the Insolvency Act 1986, and whether the second guarantee included a conditional payment obligation.

1. Appeal dismissed. The first guarantee was incapable of founding a bankruptcy petition because its “see to it” and indemnity obligations sounded in unliquidated damages. The fact that the resulting damages would equal an undisputed and arithmetically ascertainable underlying debt did not convert the liability into a liquidated debt.
2. The court applied the classification in McGuinness v Norwich and Peterborough Building Society [2011] EWCA Civ 1286, [2012] 2 All E.R. (Comm) 265. A “see to it” obligation and an indemnity create liability in damages, whereas a conditional payment obligation creates liability in debt. A clear and binding Court of Appeal decision could not be displaced by modern concerns about proportionality.
3. The second guarantee contained three distinct parts: a “see to it” obligation, an indemnity, and a promise concerning payment on demand. Construed in the context of the entire agreement, including the credit terms, the payment-on-demand provision required the guarantors themselves to pay sums owed by the company. It therefore created a liquidated debt within section 267.
4. The court construed the wording objectively, considering its natural meaning, the contractual context, the purpose of the provisions and the commercial circumstances known when the agreement was made. The reference to payment “on demand” was apt to describe payment by the surety, since the company’s credit terms required payment at a specified time after invoice. The court also treated the surrounding suretyship terms as confirming, though not themselves constituting, that construction.
5. As the amount secured by the second guarantee exceeded the bankruptcy threshold, the order dismissing the opposition was upheld, subject to the outstanding procedural requirements for making a bankruptcy order.

• High Court, Chancery Appeals: The appeal from the order of District Judge Jones-Evans dated 13 September 2024 was dismissed. The respondent was permitted to rely on its late respondent’s notice after relief from sanction.
• County Court at Caernarfon: The grounds of opposition to the bankruptcy petition were dismissed. The petition was adjourned because the respondent had not filed a compliant list of creditors and certificate of continuing debt.