Defending a claim as a deed not actually a deed....

[sunnydays]

Hi,

My partner has had a county court claim filed against him for a business he was a Director of. He was not the Managing Director, but one of the Directors and left the business and resigned as a director as he wasn't happy with how it was run. It subsequently went bust quite a few years ago.

When a Director, he signed a personal guarantee on a loan the company took out. All of the loan amount was repaid, but the debt for some of the unpaid interest has been sold on to another company who have submitted the claim. He felt pressured in to signing the personal guarantee at the time by the Managing Director.

This all came out of the blue as he left the business a number of years ago and the agreement was signed 10 years ago.

Now, no solicitor was present when the agreement was signed and no legal advice sought, although it says on the document that legal advice should have been sought. The document says it was signed as a deed but for something to be a deed it needs to be signed in the presence of someone. It does say it was signed in the presence of another person, but wasn't actually signed in the presence of someone i.e. it was signed by the witness subsequently. Has anyone got any experience of proving a deed is not a deed as such because procedure wasn't followed and the witness wasn't actually present?

I understand if it is not a deed there is a 6 year time limit on the personal guarantee hence he would not need to pay.

[atticus]

I have experience of trying to prove things. I can tell you that each case of this kind is very much dependent on its own individual facts. You need to gather all the evidence that you can about the circumstances in which this document was signed and witnessed.

NB Limitation might not be as straightforward as you appear to think. Look at the wording of the guarantee. What does it say about when the sums guaranteed become payable? If it is from date of demand, when was demand made?

[sunnydays]

Thank you, I have had feedback elsewhere that the best argument may be saying that the debt is statute barred. It says it was a deed on the document he signed, so they could argue 12 years I guess? Although witnesses signed subsequently, not at the time, but the document doesn't reflect this.

My partner also felt pressured by the Managing Director to sign, it is worth saying that the debt is statute barred and that he felt pressured in to signing. Both are potentially valid presumably?

The commencement date for the winding up of the Ltd company was 6 years ago. But the company wasn't actually fully dissolved until 2 years ago. Payments for the loan ended more than 3 years ago from what I can see.

The loan was via Funding Circle, not via a reputable bank.

He has had no communication re this loan in over 10 years, except the court papers. The address they had for him was out of date which may have been a factor perhaps. He is no longer in contact with the other ex director named on the papers.

[sunnydays]

Re the Guarantee section.

It says...

The guarantors irrevocably and unconditionally undertakes and guarantees to the Loan Servicer and to each of the Lenders whenever the Borrower does not pay any amount due....the Guarantor will pay to the Loan Servicer, immediately on demand.

To be honest much of the loan agreement appears unfair to me. I know companies can put anything in a contract but that doesn't make it enforceable.

Another section says this guarantee will continue even if the Guarantor dies which appears quite ridiculous.

[atticus]

The guarantors irrevocably and unconditionally undertakes and guarantees to the Loan Servicer and to each of the Lenders whenever the Borrower does not pay any amount due....the Guarantor will pay to the Loan Servicer, immediately on demand.

Payment was due on demand. The date of demand is the starting date for limitation purposes.

[sunnydays]

So you are saying the fact that the company started to be wound up 6 years ago makes no difference? They may have made a demand at that point I suppose so it may still be out of time, if they communicated with the other director. My partner is named on the deed but has not been party to previous correspondence. Any idea how he would find out when the demand was first made?

I can see that there is a letter asking for immediate payment in 2021 but this was not received by my partner until he got the court papers as they got his address wrong.

[sunnydays]

Surely the company being wound up and dissolved a considerable time ago, has some sort of bearing in cases like this?

[R0b]

Disputes around deeds and personal guarantees can be complex and it would be sensible for your partner to seek legal advice from a specialist who knows about these kinds of disputes, as opposed to someone who may be a generalist dispute resolution lawyer. There may be several arguments that can be put as a defence to this claim.

To answer some of your questions:

1. In order for a deed to be legally recognised as a deed, there are prescribed formalities that must be followed, in accordance with the Law of Property (Miscellaneous Provisions) Act 1989. There are 4 criteria for a deed to take effect: (i) it must be in writing (ii) the deed must at face value be considered to be a deed (iii) the deed must be executed properly by the parties and (iv) the deed must be delivered.

Each of the above four criteria have been scrutinised by the courts over centuries and guidance has been given on how a deed can be deemed invalid. For example, it is a requirement that the person signing it must be in the presence of a witness to attest to that signature.This applies both to an individual and a director of a company signing the deed on the company's behalf. How a witness attests to the signature has been developed via case law but typically, this would mean the witness standing over the individual signing the contract or by a statement in the document that says something like signed in the presence of ...

A party to the contract cannot act as a witness nor can a company, but an individual of that company can.

2. If the formalities are not met, then it is likely the contract will not be considered a deed but a simple contract and the limitation period will be 6 years instead of 12.

3. Personal guarantees can be invalidated where the guarantor is being unduly influenced or pressured into signing the deed/contract. This will be fact specific for each case. There was some case law around this and following that decision, banks and other loan provides sought to avoid any question of undue influence or pressure by ensuring that before the loan was executed, each individual got independent legal advice and had that lawyer send or sign a document confirming they have advised the individual of the consequences. If they don't have evidence of that, there is a risk a court could find there to be undue influence if it is raised by the guarantor.

4. Raising a statute barred defence means the onus is on the creditor/owner of the debt to prove it is not statute barred. Of course you need to provide a valid reason why the claim is barred and not simply say it is barred. Once you do that, the burden of proof shifts to the claimant to prove otherwise. This might be difficult for debt purchasers as they are not typically given all of the documentation and history of the account, so they could be in the dark and ultimately fail to prove their case.

5. You also mention payment was on demand. Therefore the clock starts to run form the date they first demanded payment, not the date of the breach which may be different.

Please note I make no comment either way as to the prospects of success in terms of what I've written above. This is merely some guidance for your partner to look into but I would stress again to get some independent legal advice even if he can secure a short amount of time for someone to explain whether any possible defences exist.

[atticus]

Surely the company being wound up and dissolved a considerable time ago, has some sort of bearing in cases like this?

Only in the sense that the company is unable to pay its debt. As has been said by both myself and R0b, it is on demand that the guarantor becomes liable to pay.

What do the particulars of claim in the court papers say about demand, and the date on which it was made?

[sunnydays]

Thank you ever so much both for all of this. Yes I suppose if he can get fixed fee legal advice it may be worth it but probably we will have a go ourselves and hope it gets thrown out.

Unfortunately it does say signed in the presence of, so that defence is probably out - even though it actually wasn't i.e. it was witnessed after.

Probably he should put down all these reasons

- witness not actually present, so deed not executed properly (if he can provide evidence of that, presumably that will help_.
- felt pressured in to signing by Managing Director and no legal advice obtained at time so was not fully aware of the consequences of signature.
- argue it is out of date.


Thank you for your help.

[PallasAthena]

Probably he should put down all these reasons

- witness not actually present, so deed not executed properly (if he can provide evidence of that, presumably that will help_.

I would say supporting evidence is essential!.I can't imagine a court accepting that the deed wasn't executed properly based solely on your partners memory of the signing 10 years ago when the document itself states otherwise.

The obvious evidence would be a statement from the witness stating that they were not in fact present when your partner signed the document. Any chance of that? Who else does your partner recall being present when they signed the document? Would any of them provide statements that the witness was not present at the time of signing?

[sunnydays]

echat11 I notice you have helped with a previous post re dealing with a Court Claim and Azzurro Associates. My partner is in a similar predicament in that he is being pursued by Azzurro Associates for a debt sold on by Funding Circle.


The business was wound up 8 years ago, but looking at companies house was only dissolved 2 years ago. The commencement date for the winding up was 6 years ago. But it wasn't actually fully dissolved until 2 years ago. My partner resigned as a Director around 8 years ago I think. From what I can see the debt stopped being paid in 2019.

According to a copy of a letter in the court documents, Funding Circle made a claim and demand for immediate payment in 2021. It appears to have been sent to both parties that signed the personal guarantee, but my partner didn't receive it, as it was sent to his past address.

I have read that the lender has to only go after those who gave a personal guarantee as a last resort, and has to make all efforts to get the funds from the company first. How do we check if they have actually done this? Do we have the right to certain information and what do we request? Does anyone know? As they may not have actually fulfilled that obligation and if they haven't then I can't see how they can call in a personal guarantee.

Presumably the responsibility would have been on Funding Circle to do that but now presumably Azzurro Associates would be responsible for obtaining the info as the contract has been sold to them.

[echat11]

As an ex-Director he can send a Subject Access Request, they have 30 days to provide the data. Make sure you get Proof of Postage.

https://legalbeagles.info/library/gu...ccess-request/

[atticus]

The personal data that this claimant holds is likely to be limited. Whether it casts any light on the circumstances of the guarantee is questionable. Give it a go, with limited expectations, but you never know.

[sunnydays]

I don't think it costs anything to file a defence to a county court so we may as well defend it. We can play it by ear after that. I think I read somewhere that they can only go after the personal guarantor once they have exhausted attempts to get money from the company, and that the onus is on them to provide evidence that they have done this. If they don't have enough supporting evidence, I'm presuming that presents a bigger problem for them than my partner hopefully.

Personally I do think these personal guarantees should be titled and clearly labelled as deeds as most lay people if they don't get legal advice won't necessarily understand what they are signing up for.