Where a debtor's and guarantor's obligations are co-extensive and a statutory demand would be set aside as against the debtor, it would be unjust not to set a statutory demand aside as against the guarantor.
This was the finding in Remblance v Octagon Assets Ltd, in which the claimant was the sole director and shareholder of a company that leased premises from the defendant. The claimant guaranteed his company's obligations under the lease. The company fell into arrears but there was a dispute regarding the property and the company had a pending action against the defendant for substantial damages. The defendant served a statutory demand against the claimant as guarantor in relation to the rent arrears. No demand had been served against the company as it was common ground that any such demand would be capable of being set aside under the Insolvency Rules 1986 (IA) s 6.5(4)(a) on the basis of a cross claim. The claimant appealed against an order authorising the defendant to present a bankruptcy petition against him. He argued that it would be unjust to allow the defendant to proceed against him as guarantor by the insolvency route, when it could not pursue that route against the principal debtor. The claimant claimed the same protection against the bankruptcy proceedings as was allowed to his company.
The Court of Appeal held that s 6.5(4) IA allowed a statutory demand to be set aside where it was just to do so. The court could exercise its residual discretion under s 6.5(4) IA where it would be unjust to allow the petition to be made. The claimant's and his company's obligations were co-extensive. The company had a cross claim that would defeat a petition against it and justice required that the guarantor, and the petition against him, should be treated in the same way. Justice required the statutory demand be set aside.
Things to consider
When considering issuing bankruptcy proceedings against a guarantor, because it seems easier to do so than against the principal debtor who is putting up all sorts of defences, make sure that those defences would not preclude insolvency proceedings against the debtor. If they would, it is going to be difficult, on the basis of this case, to prove to the court that it would be just to proceed against the guarantor is such circumstances. If the debtor is simply creating a smoke screen, however, the petition should be presented, especially if the guarantor appears to have assets.