See-to-it guarantees cannot found a bankruptcy petition, Court holds

A guarantee in which the guarantor promises that the principal debtor will pay is a "see to it" obligationNationalarchives, and the guarantor's liability when the debtor defaults sounds in damages rather than debtNationalarchives. Such a liability is not a debt for a liquidated sum within section 267(2)(b) of the Insolvency Act 1986Nationalarchives, so it cannot found a creditor's bankruptcy petitionNationalarchives, even though the amount recoverable equals the unpaid debt.

Mr Matthews bought two restaurant companies for £1 each in June 2019 under share purchase agreements dated 13 June 2019, with the companies to repay outstanding lender loans within four years. Clause 4.4 of the Chip Shack agreement stated that "The Buyer guarantees to each of the Seller and BSN the repayment of the Loans by the Company"Nationalarchives, covering £66,950 owed to BSN and £12,800 owed to Oak First. Chip Shack ceased to trade in September 2020. After demands in May 2023 and statutory demands in July 2023, BSN and Oak First presented a joint bankruptcy petitionNationalarchives, and a bankruptcy order was made in June 2024Nationalarchives. The High Court dismissed the first appeal in July 2025, treating the guarantee as a conditional payment obligation.

The Court of Appeal allowed the second appealNationalarchives. Following Moschi v Lep Air Services, a promise framed as guaranteeing the debtor's performance is an absolute promise that the debtor will performNationalarchives; breach puts the guarantor in breach and the remedy is damages measured by the unpaid sumNationalarchives. That differs from a conditional promise to pay if the debtor does not, which creates a debtNationalarchives. Clause 4.4 contained no words of conditional paymentNationalarchives, unlike the separate Crab Shack deed's promise to "pay on demand" if the borrower did not pay, and surrounding clauses assuming repayment could not stretch plain language that was not ambiguousNationalarchives.

A claim under a see-to-it guarantee is therefore a claim for unliquidated damages, not a liquidated sumNationalarchives. The court followed McGuinness v Norwich and Peterborough Building SocietyNationalarchives: the test is whether the guarantee itself reduces liability to a specified agreed sum as a debt or pre-agreed damagesNationalarchives, not whether the amount is readily ascertainable. A liquidated-damages clause would qualify; a see-to-it guarantee does not.

The liquidated-sum point was new on the second appeal, but the court permitted it. Construction of clause 4.4 was a pure question of law on which no admissible evidence could have made a difference, and it went to the court's jurisdiction to make a bankruptcy order. An admission by Mr Matthews in 2021 county court proceedings that he had given a guarantee and would be liable if the company did not pay did not estop him, since it said nothing about the legal form of that liability. A set-off defence built on the indemnity and set-off clauses failed as commercially absurd, and a further set-off argument was left open for any future claim. The court also confirmed that an appellant cannot simply withdraw an appeal without the court's agreement, and proceeded in Mr Matthews' absence on his former counsel's skeleton argument given the jurisdictional significance and the costs position.

Legal basis: Insolvency Act 1986, sections 264 and 267, with Moschi v Lep Air Services and McGuinness v Norwich and Peterborough Building Society.