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Can you bankrupt someone on a guarantee in a share purchase agreement? You can if the guarantee is a promise by the guarantor to pay if the company doesn’t, but if it’s worded as a promise that the company will pay, the Court of Appeal has confirmed that the creditor can’t go straight to a bankruptcy petition and has to sue for damages first. The guarantor still owes the money either way, so this is about which route the creditor can take to collect it, and in this case the wrong route cost the creditors their bankruptcy order.
The case is Matthews v BSN (SW) Property Ltd [2026] EWCA Civ 1442, decided by the Court of Appeal on 11 November 2026. Lord Justice Nugee gave the judgment and the other two judges agreed. It overturns decisions of the County Court and the High Court, both of which had upheld the bankruptcy order.
What happened
In 2019 Mr Matthews bought two small hospitality companies, a restaurant and a fish and chip shop in Devon, for £1 each. The real price was that the companies owed money to lenders connected with the seller, and the share purchase agreements provided for those loans to be repaid. For the chip shop company the loans were £66,950 to BSN and £12,800 to Oak First, interest-free and repayable within four years of completion at whatever pace Mr Matthews chose.
Clause 4.4 of the chip shop SPA said that “The Buyer guarantees to each of the Seller and BSN the repayment of the Loans by the Company.” On the restaurant purchase Mr Matthews had also signed a separate deed of guarantee, which said he would “pay on demand” whatever the company failed to pay, but on the chip shop he signed nothing apart from the SPA.
The chip shop stopped trading in 2020 and the loans weren’t repaid by the fourth anniversary in June 2023. BSN and Oak First served statutory demands and then petitioned for his bankruptcy, and a bankruptcy order was made in June 2024.
Two kinds of guarantee
Under section 267 of the Insolvency Act 1986, a creditor can only petition for someone’s bankruptcy on a debt “for a liquidated sum”, which broadly means a fixed amount the contract itself says is payable. A claim for damages doesn’t count, even where the amount is easy to work out.
The law has long recognised two forms of guarantee for this purpose. In a conditional payment guarantee the guarantor promises that if the company doesn’t pay, he will, and when the company defaults the guarantor owes the money as a debt. In a “see to it” guarantee the guarantor promises that the company will pay, so when the company defaults the guarantor is in breach of his own promise and owes damages, measured by what the company didn’t pay. The House of Lords explained the difference in Moschi v Lep Air Services in 1973, and in McGuinness v Norwich and Peterborough Building Society [2011] EWCA Civ 1286 the Court of Appeal held that a claim under a see to it guarantee isn’t a debt for a liquidated sum, so it can’t found a bankruptcy petition.
The creditor gets the same amount of money either way, which is why the distinction rarely matters until someone tries to bankrupt the guarantor.
What the Court of Appeal decided
The court held that clause 4.4 was a straightforward see to it guarantee, as it was a promise that the company would repay the loans, with no words saying Mr Matthews would pay if it didn’t. The judge said it was “about as simple a form of guarantee as one could find”, and compared it with the restaurant deed, which showed how easily a promise to pay could have been written.
The creditors pointed to other clauses in the SPA which referred to the “agreement of the Company and the Buyer to repay the Loans”, and the High Court had found those enough to read clause 4.4 as a promise to pay. The Court of Appeal accepted that whoever drafted the SPA probably assumed Mr Matthews would have to pay the loans himself, but said that couldn’t change the meaning of a clause which wasn’t ambiguous. It also let Mr Matthews raise the point for the first time on appeal, as it was a pure question of construction which went to whether the court had power to make him bankrupt at all, and it rejected an argument that he had admitted the point when he accepted in earlier court proceedings that he had given a guarantee.
Mr Matthews had also argued that an indemnity in the SPA for company liabilities not listed in a schedule wiped out the loans, as they weren’t on the list. The court said that reading would make a nonsense of the clause dealing with the loans, and rejected it.
What the decision doesn’t do
Mr Matthews hasn’t been let off the money, as although the bankruptcy order goes, the creditors can still sue him for damages under the guarantee, and the judgment notes that summary judgment shouldn’t normally be hard to get on a see to it guarantee, and that a judgment could then be used to found a petition. He would also be able to raise his argument about other undisclosed debts if he is sued, as the court didn’t decide it. It’s a Court of Appeal decision, so it binds the lower courts, but it applies an existing line of authority rather than making new law.
The judgment also records that the SPAs appear to have been drafted by the firm of solicitors acting for Mr Matthews on the purchases, rather than by the seller’s side.
What to do if you’re relying on a guarantee in a sale
Sellers often leave money in the business when they sell, as a director’s loan the company is to repay, or as deferred consideration (I’ve written about the risks of deferred payments separately), and a personal guarantee from the buyer is a common way of protecting it. If you’re taking one, make sure it says the guarantor will pay on demand any amount the company fails to pay, and that he is liable as a principal debtor and under an indemnity as well as a guarantor. A separate deed of guarantee, as Mr Matthews signed for the restaurant, is better than a one-line clause in the SPA, and it should name every lender it’s meant to protect; clause 4.4 here named the seller, who wasn’t owed the loans, and left out Oak First, which was.
If you’ve already got a guarantee worded like clause 4.4, it still works, but you should expect to have to sue and get judgment before you can think about bankruptcy, and plan your timetable with that in mind. And if you’re the one being asked to guarantee a company’s debts, have the wording looked at before you sign, as you’ll be liable for the money however it’s drafted.
I draft and negotiate share purchase agreements and the deferred consideration and guarantee arrangements that sit alongside them. I don’t run insolvency or debt claims myself; those go to my Nexa colleagues who handle insolvency work. Get in touch if you need some help.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation. Law correct as at .
