BR-2024-000761 - [2025] EWHC 2900 (Ch)

Before turning to the correspondence in detail, I mention that there are frequent references to the adjective “moot” where it appears that the meaning is different to its ordinary dictionary meaning. An example of its use giving the adjective its ordinary dictionary meaning is: “whether they had been successful or not was a moot point”. The parties to the correspondence use the word to mean “academic” or “irrelevant” in the sense that the event under consideration will not occur. If it will not occur owing to a series of other events it is said to be “moot”.

Mr Schneider wrote to Mr Leahy on 23 June 2022:

“Leanne and Cal noted to me about this DoP and, well, I am not up to date on all the information but I have been asked to note that you have limited PG’s with us, but if you accept to remove the limit then we can just sign the DoP as is. If you agree then I don’t have to do anything, Leanne will issue updated PG’s and do the DoP and all is done. If you don’t agree then I have to work out what the issue is and share my thoughts to they and you and … so ideally agree …? But I accept you may not wish to? Thoughts?”

The response from Mr Leahy was surprise:

“Well, this is a bit left field. Can I ask how the two are related? I don’t mean that to sound rude, I’m sure there is a reasonable explanation/requirement. Just wasn’t expecting it. I haven’t spoken to Ron but I know he would be against it as it just puts too much of his life at risk, which is fair. I’m a bit more blasé, primarily because I’m sure we have an agreement now with Sonovate and therefore, your facility will not be required by the time this second debt becomes payable etc...”

I infer from the primacy placed on the agreement with Sonovate and later concerns expressed by Mr Leahy, that he was not “a bit more blasé” following the failure to reach agreement with Sonovate.

Mr Schneider responded on the same day:

“I must admit I can’t answer the question…but I was asked to ask. So, well, I asked!”

Adam Lewin of SIA, who was copied into the response given by Mr Schneider, wrote to explain the rationale for an unlimited personal guarantee:

“We are being asked to weaken our security by allowing a payment to be made out of the company while debt is still outstanding to us, on the proviso that the directors (ie you two) assure us that it won’t damage the company’s ability to repay our debt. By putting the directors jointly and severally responsible for covering the entirety of our debt in the event that in fact the company can’t repay us post making the payment to MC, we can have more confidence that the directors are very certain that said damage won’t occur (as they take on the risk themselves in that event),which enables us to allow the requested changes to the deed of priority…I note also from the below that you don’t expect to have any debt with us at the point the repayment to MC is going to be requested in any case, which means that the increase in the PGs is moot and thus I can see even less reason why it would be an issue.”

There are three comments that are worth raising at this point. First, Mr Lewin does not mention the numerous protections drafted into the Deed. Given the protections there was little or no risk of loss arising from a prior payment to MCL. Secondly, the limited personal guarantee (£30,000) was to be replaced with the unlimited personal guarantee. There was never any question of an “increase” in the limited personal guarantee in the event of a prior payment to MCL. Thirdly, the rationale related only to an unlimited personal guarantee related to a payment made to MCL ahead of SIA: a limb 2 event. It has no relevance to a demand under limb 1. These points were not lost on Mr Leahy. Nevertheless, Mr Lewin was correct to say that if there was no debt owed to SIA, the personal guarantee would not be called upon. Mr Leahy responded:

“The primary security over your debt is the salary advance book. This is ringfenced in terms of the cash flow such that we do not use your cash for anything other than providing advances and then once the salary is received, this is repaid back. In order for the risk of your working capital facility to increase, we would need to divert salary repayments away from your debt prior to repaying you. This would be in breach of our agreement with you. I point this to highlight that there won’t be a increased risk as the only way we can repay this debt is through free cash generated from profits or equity investment…The reason I say this is because we cannot increase our PG’s… PG is really there to ensure Ron and I stick around and put the work in to ensuring we get salaries repaid. Eg, Suez goes bust and misses a payroll run we then need to negotiate with Administrators and reclaim from government schemes in order to ensure this money comes in…

The DoP gives you the ability to stop the repayment if you deem it risking your own debt. In practical terms, we would have to show to you that the salary advances plus fees due were higher than the debt owed whilst at the same time showing we had free cash over and above our cash flow needs in order for you to approve the payment. I would have thought this was sufficient security for you…Hopefully the above makes sense and you guys are more comfortable moving forward without increased PG’s and the right to stop repayment unless you are happy it doesn’t cause financial stress to the business.”

The response from Mr Lewin was that SIA did not want to make checks to see if a repayment to MCL breached the terms of the Deed or placed SIA in a more precarious position than it bargained for. In other words a limb 2 event. Mr Leahy’s response to oversight of legitimate payments to MCL only was:

“That’s fair enough. I’ll put my hand up.”

Leanne Van Vuuren, in-house counsel for SIA, wrote on 27 June with an attached unlimited guarantee saying that it “will supersede the previous limited guarantee.” Mr Leahy responded to the receipt of the unlimited guarantee on 19 June specifically challenging the need for the inclusion of limb 1 in the definition of an Effective Date:

“Thanks for this. My one comment is that the guarantee should only commence once the second charge debt repayment commences (or one of the other events that requires your permission?) The Logic of the PG is that I will not permit the repayment of the Junior Debt unless I am absolutely sure it won’t impact your Senior Debt and our ability to repay that. Between now and the event there is no change in the risk profile from what it currently is and therefore the current PG’s are adequate.”

Mr Lewin seemed to agree with Mr Leahy in an e-mail dated 30 June but there is some confusion on his part:

“. . . I think that is the intent, yes; your PG can remain limited while the situation re: junior debt repayment remains as it is. I will double check with the others that they are happy with that. Others, are you happyt (sic)”

Mr Schneider confirmed “I am” and Leanne Van Vuuren responded that she:

“will have to come up with a way to implement that but its fine.”

I conclude from this exchange that there is a genuine triable issue that SIA and Mr Leahy shared a mutual understanding that the Effective Date to be relied on related to limb 2 and not limb 1 as this reflected the express concern of SIA namely, that the Company will pay MCL ahead of SIA.

Mr Leahy and Schneider agree a phone call followed on 15 July 2022. The evidence of Mr Leahy is that Mr Schneider, explained that SIA would only call on the Guarantee if the Company repaid MCL, and the Company was left out of pocket as a result, but in no other circumstances.

Mr Schneider says in his witness statement [20]:

“No representations, either verbal or written, were ever given to the Respondent by me suggesting that Guarantee 2 was only for the purpose of repaying the Junior Debt and would not be called upon. The intention was always clear that the trigger events of Guarantee 2 were aligned to the Effective Date (as above) and if a trigger event occurred, we would call for repayment. ”

The assertion that the intention was always to protect SIA from a demand served by MCL on the Company is not reflected in any of the correspondence. The only reason voiced in the correspondence for an unlimited guarantee was to safeguard against the Company making payment to MCL ahead of the Company. In this respect the statement given in paragraph 20 of Mr Scheider’s witness statement, when set against the background and all other admissible evidence, is without substance and inherently implausible.

For the purposes of the Application hearing, given that there is no cross-examination, and the evidence provided by Mr Leahy is not manifestly incredible, I accept Mr Leahy’s version of events: The Burden Group Limited [2017] BPIR 554; Long v Farrer & Co [2004] BPIR 1218.

The next relevant date is 15 September 2022 when Leanne Van Vuuren e-mailed Mr Leahy attaching the unlimited personal guarantee. She wrote:

“Further to the below, please find attached the execution copy PG for your signature and witnessing please. Once signed, please date the document and scan a copy back to us.”

Mr Leahy did not have the benefit of legal advice but given the earlier representations that the guarantee will only be called upon if a payment is made to MCL (rather than a limb 1 event), responded on the hour:

“I cannot see in this document where this only kicks in once the Junior Debt is paid. I’ve only scanned it so perhaps I’m blind. Can you point it out to me. Maybe it needs to be added in?”

The response from Leanne Van Vuuren was swift:

“This is under the Effective Date definition – should already deal with your concerns but please shout if not.”

The response of Leanne Van Vuuren suggests that she was aware that only limb 2 would be relied upon as the Effective Date. Mr Leahy responded at 11:03:

“Yes, one concern. My guarantee should only kick in if we actually pay it. Them making the demand should not trigger it. The point is if I agree to it being paid I am guaranteeing to you guys [the Company] can afford it. If they make the demand and [the Company] can’t afford it, I shouldn’t then be automatically on the hook with you guys. Can you change the wording on the effective date and then I am happy to sign it.”

The e-mail dated 11:03 from Mr Leahy was referred to Mr Schneider who himself responded. The response from Mr Schneider is confused, and not easy to follow:

“Henry may or may not ask for the cash back in the future If he doesn’t then all is moot and your PG stays limited at 25k. If he does then he has to wait till a certain date before he can ask. My memory is that it is 3 months before the date it would then be due. So assuming he asks (he aka the administrator will I am sure), My Wages aka Elva will either consider it will be in a position to pay or not. If it (you therefore etc) considers it is / will be in a position to pay, then you confirm this to us, we leave our existing stuff working as it is, you then pay him; sorted, but your PG grows etc. If it considers it isn’t in a position to pay come due day then you will either ask to borrow it from us or not as you think is apt. If we are asked we may or may not lend; if we lend, then we leave our other existing stuff as it is, we lend this extra cash, you then pay him, sorted, but your PG grows etc. If you feel it isn’t sensible to borrow to repay him or we decline to lend if asked, then Schneider gets repaid at the end of that month, doesn’t relend, the business folds, you owe us nothing, doesn’t matter what lever the PG is at. Have I gotten that all right, in English at least? If yes, then does not LM’s drafting do this? She is rather reluctant to do more drafting and iterations etc and asked me to make you say “sorry, sorry, yeah, tis fine, I will sign!” LOL”

Net net the PG only extends if we don’t pull out and you repay him; you will only extend the PG if you think all will be fine therefore. Checking?

Although counsel struggled to make submissions on the meaning of the e-mail it is possible to pick out some salient themes. First, Mr Schneider recognised that the repayment date for the deferred consideration was close. Secondly, as the date was close, it was likely that a demand for payment (“if he asks”) would be made. Thirdly, he recognises that the Company would either be able or not be able to satisfy any demand if made in the near future. Fourthly, SIA may lend the money to the Company to make the payment if the Company could not meet the MCL Demand. If it could make payment: “we leave our existing stuff working as it is” appears in the context to mean that the Company would be permitted to make payment without SIA calling in its debt. Fifth, if no payment is made to MCL on the relevant date the Company would repay the outstanding loan to SIA at the end of the working month in the usual way and “the business folds”. Lastly, the unlimited personal guarantee will only be enforced if: (i) SIA is not repaid, (ii) MCL is repaid.

Mr Leahy would have taken some comfort from Mr Schneider’s e-mail as it appears to, in large part, affirm his position. On the following day he wrote to Leanne Van Vuuren to suggest that limb 1 should be deleted from the Effective Date definition. He comments on 16 September 2022:

“the effective date should be [limb 2 of the Effective Date] with or without your consent. How this is paid is kind of irrelevant.”

Mr Schneider responded at 14:21 on the same day:

“I hear ya; two things really

1 – If (when) Havisham aka Henry aka MC aka an Administrator requests repayment, likely 3 months before it is due, the below wording says your PG goes up; you will then confirm if all is tickerty boo (i.e. in funds aka we do the loan if not and you say is sensible and we agree*) and a month or so later pay them back, where the PG is already increased so b) is moot as a) has happened. If however when Henry asks you do not have the funds and we don’t lend, although your PG will go up as they have requested, you will then pay us back at that month end, before cash is due to Henry. Schneider will then have no debt (assuming Ajay is resolved this month as per the master mail etc) so although you have an infinite PG, it isn’t securing anything and hence moot. I.e. the wording as is works; you are either happy to repay Henry and PG goes up or you are not; if the later albeit the PG goes up it is against zero debt so moot. Get me?

2 – I admit this structure was chatted through with Adam and you and I seem to get the fun of then moving it forward, but net net as agreed, but as time then flows forward, assuming Henry is made whole, I understand your point re it maintaining forever. As opposed to working through that now, can we not re-look at that in the future. I.e. when you feel the Henry element is behind Elva and thus you would like the PG to shrink again you can ask. If we agree then, well, that’s easy. If we decline you then either accept or put the cash back, removing the PG. Does that float?”

Mr Leahy may have understood the response from Mr Schneider to mean simply that the personal guarantee “isn’t securing anything” in the scenario where the MCL debt is repaid or the MCL debt is not repaid. It is not impossible to read the e-mail sent by Mr Schneider’s e-mail as giving a worked example whereby SIA does not enforce the personal guarantee on the basis of a limb 1 event:

“…(when) … an Administrator requests repayment… a month or so later pay them back…[limb 1] has happened…[on a limb 1 event] you will then pay us back at that month end, before cash is due to [to the MCL]… Schneider will then have no debt… so although you have an infinite PG, it isn’t securing anything and hence moot. I.e. the wording as is works; you are either happy to repay Henry and PG goes up or you are not; if the later albeit the PG goes up it is against zero debt so moot. Get me?”

This interpretation of the e-mail exchange is not inconsistent with the rationale given for an increase in Mr Leahy’s personal liability; the security given in favour of SIA over the Company; the terms of the Deed and Mr Schneider’s own written evidence [30]:

“The entire premise of Guarantee 2 [the unlimited personal guarantee] was to rely on the Applicant for recovery if the Borrower failed to repay the Respondent”. (my emphasis)

This is consistent with Mr Schneider’s evidence that there would be no enforcement of the personal guarantee unless the Company failed to pay under limb 2 of the Effective Date, as this:

“Aligned with the agreements and discussions held during the telephone conversations with the Applicant.”

It is also supported by the e-mail of 16 September 2022 from Mr Schneider where he said:

“net net, as agreed”.

Written in the past tense, I infer that there was some sort of agreement reached in the June- July 2022 period. That being so, there is a genuine triable issue that “as agreed” referred to the 15 July 2022 telephone conversation. This may explain why Mr Leahy responded to the e-mail on 16 September 2025:

“OK, I’ll sign.”

Having read the written evidence of Mr Schneider I am not entirely sure he understood the legal consequences of the Deed and the unlimited personal guarantee. Nevertheless, it was SIA that was legally represented and not Mr Leahy.