“See to It” Guarantees Do Not Themselves Create Debts Capable of Supporting Bankruptcy Petitions

1. Introduction

This decision confirms an important distinction between a guarantor’s liability to pay money and a creditor’s entitlement to seek the guarantor’s bankruptcy. A guarantee may make the guarantor liable for precisely the amount unpaid by the principal debtor without creating a “debt for a liquidated sum” capable of supporting a bankruptcy petition under section 267(2)(b) of the Insolvency Act 1986.

The distinction turns on the obligation undertaken. A promise that the principal debtor will repay a loan—a “see to it” guarantee—ordinarily gives rise to damages when repayment does not occur. A promise by the guarantor personally to pay if the principal debtor defaults—a conditional payment guarantee—creates a payment obligation sounding in debt. Although the practical financial outcome may be identical, the available enforcement procedure differs.

The appellant had guaranteed loans owed by Chip Shack Ltd to BSN (SW) Property Ltd and, allegedly, Oak First Investments Ltd. The respondents obtained a bankruptcy order, which the High Court upheld. The Court of Appeal allowed the appellant’s second appeal because the relevant guarantee created an unliquidated damages liability, not a petitionable debt.

The judgment also addresses new arguments on appeal, attempted withdrawal by an unrepresented appellant, estoppel arising from informal admissions, and the interpretation of contractual indemnity and set-off provisions.

2. Background and Procedural History

The share purchases and guarantees

In June 2019, the appellant acquired shares in two restaurant businesses, Crab Shack Restaurants Ltd and Chip Shack Ltd. Each transaction involved nominal consideration of £1 and arrangements for repayment of outstanding company loans.

Under the Chip Shack share purchase agreement, the company owed BSN £66,950 and Oak First £12,800. The loans were interest-free and had to be repaid before the fourth anniversary of completion. Clause 4.4 provided:

“The Buyer guarantees to each of the Seller and BSN the repayment of the Loans by the Company.”

No separate guarantee deed was executed for Chip Shack. This contrasted with the Crab Shack transaction, where a separate deed expressly required the appellant to pay on demand when the borrower failed to pay its obligations.

The Chip Shack agreement also contained an indemnity concerning company liabilities not listed in a schedule and a broadly expressed contractual right of set-off. Those provisions later formed the basis of alternative challenges to the alleged liability.

Earlier proceedings

Chip Shack ceased trading in September 2020. Oak First commenced proceedings against the appellant in 2021. A default judgment was set aside after the appellant argued that the agreed four-year repayment period had not expired. Oak First subsequently discontinued its claim.

After the repayment period expired in June 2023, the respondents served statutory demands and jointly petitioned for bankruptcy. The demands incorrectly appended the Crab Shack guarantee, although the petition correctly identified clause 4.4 of the Chip Shack agreement.

DJ Wales made a bankruptcy order on 18 June 2024. He considered that BSN’s claim alone exceeded the bankruptcy threshold, making it unnecessary to decide whether Oak First also benefited from the guarantee. That question arose because clause 4.4 named the seller and BSN, but not Oak First.

The High Court dismissed the first appeal in [2025] EWHC 1650 (Ch). It declined to permit a newly advanced argument that the guarantee claim was unliquidated and, alternatively, held that the guarantee created a conditional payment obligation.

3. Summary of the Court of Appeal’s Decision

• Construction: Clause 4.4 was a “see to it” guarantee. It promised repayment by Chip Shack, rather than expressly promising payment by the appellant upon Chip Shack’s default.
• Liquidation: Liability under that guarantee was a claim for unliquidated damages. Its amount being readily ascertainable did not make it a liquidated sum for section 267(2)(b).
• New argument: The appellant could raise the point on appeal. It was a question of contractual construction, did not depend on additional admissible evidence, and concerned the court’s jurisdiction to make the bankruptcy order.
• Estoppel: Earlier acknowledgments of personal liability did not establish an admission that the guarantee created a petitionable debt.
• Set-off: The argument that the indemnity automatically cancelled the expressly agreed loans was rejected. A separate proposed set-off concerning other liabilities was not finally determined.

The appeal therefore succeeded on the guarantee and new-point grounds. The bankruptcy order could not stand on the claim advanced.

4. Legal Reasoning

A. Bankruptcy liabilities are broader than petitionable debts

The court began with the statutory distinction. Sections 385(1) and 382(3) of the Insolvency Act 1986 give “debt” a broad meaning for individual insolvency purposes. Liabilities may be present or future, certain or contingent, and fixed or otherwise ascertainable.

That breadth does not remove the more specific conditions governing a creditor’s bankruptcy petition. Section 267(2)(b) requires a debt for a liquidated sum, payable immediately or at a certain future time, and unsecured. Other statutory conditions must also be satisfied.

Accordingly, establishing a substantial financial liability is not enough. The liability must have the legal character required for the particular insolvency procedure. The court treated that requirement as jurisdictional.

B. The wording determined the type of guarantee

Clause 4.4 guaranteed “the repayment of the Loans by the Company”. It did not state that the appellant would personally pay if the company failed to do so. Applying established authority, the court regarded this as an unambiguous promise that the company would perform.

The distinction can be summarised as follows:

The court expressly rejected the suggestion that a “see to it” guarantee merely requires reasonable or best efforts. It imposes an absolute promise of performance. The principal debtor’s failure automatically places the guarantor in breach; proof of inadequate efforts is unnecessary.

C. Commercial purpose could not supply missing words

The respondents relied on commercial background, imperfect drafting and other provisions referring to the buyer’s agreement to repay the loans. They argued that these considerations supported a conditional payment construction.

The court accepted that guarantees must be construed in their contractual setting, but held that interpretative tools cannot impose a meaning which clear language cannot reasonably bear. Clause 4.4 contained no words creating the suggested personal payment obligation, including the alternative suggestion that such an obligation arose automatically on the fourth anniversary.

Clauses 8.1 and 10 suggested that the draftsperson assumed the appellant would have to pay if the company did not. That assumption did not resolve the legal classification: a “see to it” guarantee also requires the guarantor to pay, but by way of damages.

Nor did commercial common sense favour the respondents’ construction. Both forms of guarantee provide substantial protection. A creditor with a “see to it” guarantee can ordinarily seek judgment, potentially by summary judgment, and then rely on the judgment debt for bankruptcy purposes. The desire for security therefore did not establish an intention to create an immediately petitionable debt.

D. Easy calculation does not make damages liquidated

The respondents’ alternative argument was that the amount due could be calculated simply by subtracting repayments from the outstanding loans. The court accepted that the calculation was straightforward but rejected the legal conclusion.

The relevant question was whether the contract itself imposed an obligation to pay a sum as a debt or as pre-agreed damages. A damages claim does not become liquidated merely because the applicable measure produces an obvious figure.

This separates certainty about the likely amount from the contractual source and character of the payment obligation. The guarantee supplied a promise of performance; the law supplied damages for its breach.

E. The new argument was properly available on appeal

The High Court had considered that earlier presentation of the argument might have changed the evidence. The Court of Appeal disagreed. The words of the guarantee presented a straightforward construction issue. Evidence of negotiations or subjective intentions would not have been admissible to determine their meaning.

Although relevant factual background can assist contractual interpretation, the realistic background here established only that the creditors wanted a guarantee—something already apparent from the agreement. It could not determine which legal form the actual words created.

The respondents also suggested that evidence about drafting assistance or a possible rectification claim might have mattered. The court was doubtful about the admissibility and usefulness of drafting-process evidence, and observed that a disputed rectification claim would not have been tried at the bankruptcy hearing.

Exercising the discretion afresh, the court permitted the argument. Its jurisdictional significance strengthened the case for doing so: making an individual bankrupt on a non-petitionable obligation was prima facie unjust.

F. An informal admission did not establish the required legal classification

During the 2021 proceedings, the appellant had accepted that he would have to pay if the company did not. The respondents argued that he was estopped from disputing the petitionable character of his liability.

The court rejected that argument. The admission was entirely consistent with either form of guarantee. The earlier hearing concerned whether proceedings were premature, not whether liability arose in debt or damages. Neither side had legal representation at that hearing, and it would have been unrealistic to read the appellant’s words as addressing that technical distinction.

The evidence also did not establish the asserted reliance. Discontinuance of the earlier action was more readily explained by its prematurity, while the suggestion that the respondents later selected bankruptcy proceedings in reliance on the admission was unsupported.

The decision therefore rejects the particular estoppel case advanced; it does not establish a universal rule about every admission concerning guarantee liabilities.

5. Precedents Cited and Their Influence

Moschi v Lep Air Services Ltd [1973] AC 331

This House of Lords decision supplied the controlling analysis of guarantee obligations. A company had agreed to discharge a liability by instalments, and its director guaranteed performance. After default and acceptance of the company’s repudiation, the issue was whether the guarantor’s liability extended beyond instalments already unpaid when the contract ended.

The House distinguished a promise personally to pay on default from a promise that the debtor would perform. The guarantee fell into the latter category. Breach therefore generated damages covering the relevant loss, rather than liability confined to instalments already due when the contract was terminated.

Lord Diplock’s historical analysis explained why a promise guaranteeing another’s performance sounds in damages even when the underlying obligation is monetary. Lord Reid likewise distinguished the two possible contractual structures.

The Court of Appeal considered the wording of clause 4.4 materially indistinguishable in legal effect. The authority also defeated the suggestion that “see to it” meant only an obligation to use best endeavours.

McGuinness v Norwich and Peterborough Building Society [2011] EWCA Civ 1286, [2012] 2 All ER (Comm) 265

This was the central authority on the liquidated-sum requirement. Patten LJ, with the agreement of Moses and Ward LJJ, examined the historical bankruptcy authorities and concluded that an ordinary “see to it” guarantee gives rise to unliquidated damages, not a petitionable debt.

The appeal in that case nevertheless failed because the particular guarantee contained a conditional payment obligation. Its significance here lay in rejecting the creditor’s alternative contention that a “see to it” liability was itself liquidated.

The present court expressly declined to determine whether that analysis was technically part of the earlier decision’s ratio or was obiter. Either way, it was a carefully reasoned and unanimously accepted treatment of the precise issue. The court saw no basis for departing from it and adopted its distinction between a contractually payable sum and damages measured by the underlying debt.

Re Ward, ex p Ward (1882) 22 Ch D 132

The respondents relied on this decision as showing that damages could support a bankruptcy petition. A stockbroker’s default had triggered Stock Exchange rules requiring outstanding transactions to be closed at specified market prices.

The Court of Appeal rejected the suggested analogy. The incorporated rules formed part of the contractual arrangement and provided a contractual mechanism fixing the amount payable upon default. The claim was therefore for a debt ascertained under the contract, not ordinary damages assessed for breach.

The case illustrates that a liquidated sum need not necessarily appear as a single numerical figure in the contract. A contractual mechanism can determine it. What was absent here was an equivalent contractual payment obligation.

Wallis v Smith (1882) 21 Ch D 243

This authority featured in the analysis adopted from McGuinness v Norwich and Peterborough Building Society. Cotton LJ’s explanation of liquidated damages as damages assessed by the parties in their contract helped distinguish agreed compensation from damages supplied by the ordinary law.

Nugee LJ agreed that a valid contractual liquidated-damages provision could create a petitionable debt because it provides for payment of a pre-agreed sum. That observation was not necessary to decide this appeal: clause 4.4 was not such a provision.

Singh v Dass [2019] EWCA Civ 360

This case supplied the principles governing new points on appeal, particularly the general reluctance to permit an argument where it would have affected the evidence below.

The High Court stated the principle correctly but misapplied it. No relevant additional evidence could realistically have altered the construction of the clear guarantee wording. The authority therefore did not justify refusing the appellant’s argument.

Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173

The respondents invoked this authority for the relevance of drafting quality and professional assistance to contractual interpretation. The court accepted that such considerations can sometimes matter, but found that they did not change the meaning of clause 4.4.

The judgment also expressed doubt about using evidence of the drafting process for that purpose. It did not decide that such evidence is invariably inadmissible; rather, no useful interpretative contribution was identified in this case.

Tendring DC v AB [2024] EWCA Civ 1248, [2024] 4 WLR 96

This decision established that CPR Part 38, governing discontinuance of claims, does not apply to appeals. Under Practice Direction 52A, paragraph 6.1, an appellant instead requests dismissal, and the appeal court retains control over that request.

That distinction enabled the court to continue despite the appellant’s attempted withdrawal, considered further below.

Collier v P&MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329

This authority established that a debtor’s mere assertion of a dispute is insufficient: the dispute must have enough substance to constitute a genuine triable issue.

It was relevant to the proposed set-off concerning other company liabilities. The court questioned whether the evidence exceeded mere assertion, but did not finally decide the issue because the appeal already succeeded on other grounds.

6. Additional Procedural and Contractual Issues

The court’s refusal to permit withdrawal

The appellant sought to withdraw shortly before the hearing because he could no longer afford counsel and felt unable to represent himself. The court recognised that withdrawal requests should ordinarily be respected, particularly because continued proceedings may expose an unwilling appellant to costs.

However, this request arose from perceived inability to continue, rather than abandonment of the merits. The court had his former counsel’s skeleton argument, had identified a potentially significant jurisdictional issue, and considered that nearly all the respondents’ costs had already been incurred. Dismissal on withdrawal would itself ordinarily attract an adverse costs order.

In those unusual circumstances, the court declined the request and heard the respondents’ submissions. The decision demonstrates the court’s protective and supervisory discretion without establishing a general entitlement to have an appeal argued in an appellant’s absence.

The proposed indemnity against the loans themselves

The appellant argued that the loans were liabilities omitted from Schedule 3 and therefore covered by the contractual indemnity. Combined with the set-off clause, that would extinguish the repayment obligation entirely.

Nugee LJ rejected this interpretation. It would nullify the express repayment arrangements and undermine the settlement provision. With only £1 paid for the shares, repayment of the loans represented the transaction’s real value to the relevant creditors.

The indemnity concerned other liabilities not disclosed in the agreed schedule, not the loans expressly addressed elsewhere in the agreement. This reasoning reads the general indemnity coherently with the specific repayment bargain; it does not create a general rule that commercial inconvenience permits contractual rewriting.

Other undisclosed liabilities

The appellant also asserted rights of set-off arising from other company debts. The evidence was limited, and it was unclear how far the point had been pursued below.

The court expressly left this issue unresolved. The appellant remained free to advance it if the respondents pursued the guarantee. The rejection of the loan-cancelling argument should therefore not be mistaken for rejection of every possible contractual set-off.

7. Impact and Limits of the Decision

• Guarantee drafting matters: Creditors seeking a direct payment obligation should express it clearly. A general guarantee of repayment by the borrower may not achieve the intended insolvency consequence.
• Enforcement routes must match the obligation: A creditor holding a “see to it” guarantee may need to obtain judgment before using bankruptcy procedures. The underlying liability is not extinguished.
• Arithmetic certainty is insufficient: Practitioners must examine the contractual basis of the sum, not merely whether it can be calculated easily.
• Jurisdictional objections may be heard late: A new legal argument may be permitted where it requires no different evidence and challenges the statutory basis for bankruptcy. Permission remains discretionary.
• Admissions require precision: Acknowledging responsibility to pay does not necessarily concede whether liability is a debt or damages.
• Set-off requires substance: Contractual language and adequate evidence remain essential; a bare assertion will not establish a genuine dispute.

The judgment primarily reinforces existing authority rather than creates a new category of guarantee. Its principal significance is the direct application of that authority to invalidate bankruptcy founded on the wrong type of obligation.

Its limits are equally important. It does not decide whether Oak First was entitled to enforce clause 4.4, finally resolve the alleged set-off for other debts, or release the appellant from substantive guarantee liability. The discussion of contractual liquidated damages and the unsuccessful loan-related set-off was not necessary to the appeal’s disposal.

8. Complex Concepts Simplified

Petitionable debt

A debt meeting the statutory conditions for a creditor to seek an individual’s bankruptcy. Not every enforceable financial liability qualifies.

Liquidated sum

A sum payable under an existing contractual obligation, including an appropriate contractual calculation mechanism or agreed damages provision. It is not simply any amount that is easy to calculate.

Unliquidated damages

Compensation arising from breach rather than a contractual obligation to pay an agreed sum. The legal classification can apply even when the expected award is obvious.

Rectification

A remedy correcting a written instrument where the legal requirements for showing that it fails to record the relevant agreement or intention are met. It is distinct from interpreting the words actually used.

Estoppel

A doctrine that may prevent a party from departing from a position on which another has relevantly relied. Here, the admission did not address the technical position the respondents sought to establish.

Ratio and obiter

The ratio is reasoning necessary to the decision; obiter observations are not necessary to the outcome, although they may carry substantial persuasive authority.

9. Conclusion

The central lesson is that liability to pay is not necessarily a petitionable debt. Clause 4.4 guaranteed the company’s performance and therefore generated unliquidated damages upon default. The outstanding loans supplied the measure of those damages, not a direct contractual debt owed by the guarantor.

By allowing the jurisdictional argument to be raised on appeal, the court ensured that procedural history and informal admissions did not substitute for the statutory conditions governing bankruptcy. For creditors and guarantors alike, the decision makes precise drafting—and selection of the correct enforcement route—decisive.