Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
Find up-to-date guidance on points of law and then easily pull up sources to support your advice with Lexis PSL
Check out our straightforward definitions of common legal terms.
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Access our unrivalled global news content, business information and analytics solutions
Insurance, risk and compliance intelligence using big data, proprietary linking and advanced analytics.
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Discuss the latest legal developments, ask questions, and share best practice with other LexisPSL subscribers
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.
Mr Harrling and Mr Steen were directors of a company, Compuflair, which agreed to purchase the Consultant Services Group of companies (a trading business) from the respondents (the Midgley family).
The purchase price included a £2m element of deferred consideration, payable over a period of time after completion of the sale. The evidence illustrated that the parties recognised that the £2m deferred element was going to be raised by Compuflair from re-financing the assets of the business and from income/profits anticipated from the business.
The true value of those assets and the genuinely anticipated level of income/profit from the business were, therefore, material factors in the parties’ thinking.
Mr Harrling and Mr Steen were each asked to provide £100,000 personal guarantees in respect of Compuflair’s liability to the vendors to pay the deferred consideration. They contended that they agreed to do so relying upon the financial information provided to them by the vendors. When the deferred consideration was not paid, the vendors demanded the £200,000 under the personal guarantees and eventually served statutory demands on the guarantors.
The guarantors alleged that they had been misled into giving the personal guarantees because the financial information was materially wrong, and they applied to set aside the statutory demands.
The court applied the legal principles stated by Hamblin J in Cassa di Risparmio della Repubblica di San Marino v Barclays Bank Ltd  EWHC 484 (Comm) concerning misrepresentations. Silence by itself cannot found a claim in misrepresentation but an express statement may impliedly represent something, by a failure to mention something. The circumstances of a guarantee may result in an implied representation concerning the absence of facts the potential guarantor would reasonably, naturally assume did not exist (Geest plc v Fyffes plc  1 All ER (Comm) 672).
In the present case the vendors’ agents provided the purchaser’s agent with financial information (as to the value of company assets and turnover/profits) shortly before completion of the share sale agreement and execution of the personal guarantees. The court concluded that there was a substantial dispute evident from the contemporaneous correspondence that the vendors knew the purchaser was using and relying upon values and figures provided by the vendors. There was thus a substantial dispute that by implication the underlying values and figures provided by the vendors became representations of fact made by the vendors for the purpose of inducing the guarantors into providing their personal guarantees. There was no exclusion clause within the personal guarantees themselves to prevent the guarantors alleging misrepresentation and reliance.
The statutory demands were set aside.
James Stuart is a barrister at Lamb Chambers. If you have any questions about membership of LexisPSL’s Case Analysis Expert Panels, please contact firstname.lastname@example.org.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
Free trials are only available to individuals based in the UK
* denotes a required field
0330 161 1234