Deeds must be both signed and witnessed in order to be valid – but does a failure to meet that requirement render them not worth the paper they are written on? In opening the way for insolvency proceedings to be brought against a hotel developer, the High Court answered that crucial question in the negative.
The developer's business model was to establish single purpose companies (SPCs) to carry through each of its projects. Two investors lent a total of about £240,000 to one such SPC. The developer entered into a deed with the investors by which it guaranteed the SPC's repayment of those loans.
The loans not having been repaid, the investors served statutory demands on the developer in reliance on the guarantee. The developer's response, however, was to apply for an injunction restraining the investors from presenting winding up petitions against it. It was submitted that the deed was invalid, in that the signatures on it had not been witnessed, and that the guarantee was thus unenforceable.
In response, the investors argued that it would be extraordinary if they were unable to enforce a guarantee which both they and the developer had clearly intended to be binding. The developer and the SPC were in common ownership and the deed bore the signature of the sole director of both of them.
In rejecting the developer's application, the Court had no hesitation in preferring the investors' arguments. Even if the deed were invalid due to non-compliance with the required formalities, it still embodied an ordinary contractual agreement which the investors were entitled to enforce. There being strong evidence that the developer was unable to pay its debts as they fell due, there was no reason why the investors should be prevented from presenting winding up petitions.
For advice on any insolvency issues, contact Leanne Schneider-Rose l.schneider-rose@sydneymitchell.co.uk
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