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The insolvency court held that an alleged debt, arising from a personal guarantee liability relating to a company share sale agreement, was disputed on grounds which appeared substantial (applying Insolvency (England and Wales) Rules 2016, SI 2016/1024, rule 10.5(5)(b)). The guarantors (directors of the share purchaser) alleged that material misrepresentations were made to them by the vendor shareholders during the course of the negotiations of the share sale agreement, and that their personal guarantees were thus arguably invalid. The statutory demands were set aside. Written by James Stuart, barrister, at Lamb Chambers.
Harrling and another v Midgley and others  EWHC 3278 (Ch)
The case illustrates the potential breadth of the defences available to guarantors who give personal guarantees for the contractual liabilities of their principals (usually companies), especially where those guarantors alleged that they were misled by material misrepresentations.
Here the allegedly misleading statements were not contained in the ‘Information Memorandum’ which was provided to the purchasing company. Instead the guarantors relied upon financial information which was provided to them and their financial advisers during the latter part of the contractual negotiations.
Even where the share sale agreement itself contained express provisions excluding responsibility for the accuracy of statements made or information provided to the purchasers, the guarantors could arguably rely upon material misrepresentations regarding the finances of the company as a basis for invalidating their personal guarantees.
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