The High Court in Promontoria (Chestnut) Ltd v Bell [2019] EWHC 1581 (ch) held that a creditor must declare and deduct the value of security granted by a debtor to secure a third party debt in its statutory demand.
Background
In accordance with Rule 10.1(9) The Insolvency (England and Wales) Rules 2016 (“IR 2016”), a statutory demand must detail if the creditor holds any security in respect of the debt, the nature of the security and the value which the creditor puts upon the security at the date of the demand and the demand must claim payment of the full amount of the debt, less the specified value of the security.
Pursuant to Rule 10.5(5) IR 2016 the court may grant an application to set aside the statutory demand if the creditor holds some security in relation to the debt claimed by the demand.
Prior to Promontoria (Chestnut) Ltd v Bell there has been no strong authority on whether a creditor of an individual should be considered a secured creditor if they hold security over property belonging to that individual for obligations owing by a third party.
Facts
Mr and Mrs Bell were directors / shareholders in a company. The company obtained a loan facility from a bank and provided security for it. Mr and Mrs Bell provided an indemnity and personal guarantee for the company’s present and future borrowings from the bank. Mr and Mrs Bell also provided security for the company’s lending to the bank by way of third-party legal mortgages over two properties.
The company failed to repay the loan and the bank assigned its interests to Promontoria who proceeded to make demand under the loan. After realising a portion of the loan out of the company’s assets, Promontoria served statutory demands on Mr and Mrs Bell in respect of the personal guarantee, but did not detail or account for the security held over Mr and Mrs Bell’s properties.
Decision
At first instance the Court set aside the statutory demands against Mr and Mrs Bell which was upheld on appeal. The Court held that Promontoria had some security in respect of the debt claimed by the demand and proceeded to set aside the statutory demands for not complying with what is now Rule 10.1(9) IR 2016.
The High Court went on to say that the third-party charges provided by Mr and Mrs Bell for the indebtedness of the company to Promontoria are security in respect of the debt upon which the statutory demands were based.
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