The case of White v Davenham Trust Ltd, has reaffirmed that a creditor can choose its own method of enforcing a debt which has been guaranteed even where it might hold security for that debt.

White gave a personal guarantee to Davenham for the liabilities of his company. Davenham also obtained a legal charge over property owned by the company. The company went into administration and Davenham demanded payment under the guarantee. White failed to pay and Davenham issued a statutory demand. White sought to set aside the demand on the basis that Davenham's security over the assets of the company (the principal debtor) made it unjust to pursue him (the surety) for the company's debt when Davenham would be unable to pursue the company direct because it held that security.

The Court of Appeal held that if a creditor had security over a debtor's assets which were valued at more than the debt, it could not pursue bankruptcy proceedings against that debtor. The existence of the security meant that the creditor had no interest in the debtor's estate. If, however, the security was given by a third party (the company here), and there was no underlying dispute to the debt, that security did not constitute any reason why the creditor should not proceed against the guarantor. The third party security was irrelevant even where the guarantor's liability was for the same debt. The statutory demand would not be set aside.

Things to consider

The liability under the guarantee was undisputed and neither the court nor the guarantor could dictate in such circumstances, the creditor's strategy for recovering the sums due to it. The creditor could not of course recover more than was due to it.