Personally guaranteeing repayment of a company's debts should not be undertaken lightly or without professional advice as it effectively removes you from the shelter of the corporate veil. In a case on point, a prominent businessman who entered into such a guarantee ended up bankrupt under the weight of a debt totalling almost £140 million.

The businessman guaranteed the debts of a company against which an international arbitration award was subsequently made. A money judgment was entered against him after the successful party in the arbitration – the creditor– launched proceedings to enforce his guarantee. The creditor later served the businessman with a statutory demand requiring payment of £139,786,656 plus interest, which was continuing to accrue. After the demand remained unsatisfied, the creditor petitioned for his bankruptcy.

The businessman argued that the petition w  as so littered with errors that it should, at the very least, be amended, re-verified and re-served. He submitted that the creditor was precluded from enforcing the debt by the terms of a settlement agreement and that the proceedings should in any event be stayed pending the creditor's payment of a much smaller sum that it owed to him. The High Court, however, rejected all those grounds of opposition.

The Court noted that, even where a petition debt has been clearly established and any grounds of opposition have been dismissed, it retains a discretion not to make a bankruptcy order. In declining to take that course, however, the Court found that the businessman had failed to establish that he had a reasonable prospect of paying the debt in full within a reasonable time. A bankruptcy order was made against him on the handing down of the Court's judgment.

For advice on any aspect of company law, contact Leanne Schneider-Rose or Gemma Parker 0808 166 8827

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