Sheriff Appeal Court rules personal guarantee over £20,000 company loan debt enforceable by assignee of creditor’s interest

About this case:

• Citation:
  [2025] SAC (Civ) 6
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff Principal N A Ross

Appellant Kenneth Scott was the second defender in an action raised by Charles McKinlay as the assignee of a debt owed by Avellierie Ltd, of which Mr Scott was a director. As recovery against Avellierie proved ineffective, the action depended on the existence and effective transfer of any personal obligation of Mr Scott in respect of the company’s debt.

The appeal was heard by Sheriff Principal Nigel Ross. Garioch, solicitor advocate, appeared for the appellant, and Olson, advocate, for the first respondent. No appearance was made by the second respondent.

Subjective intention

In April 2017 Croftwalk Limited advanced a loan of £20,000 to Avellierie, repayable by 16 April 2018. The relevant deed of loan included a reference, amongst other terms, to a personal guarantee by the appellant, who was a director of Avellierie. He also signed a separate letter confirming the offer of a personal guarantee. A further loan of £33,000 was made by Croftwalk to Avellierie in July 2017 which also made similar reference to a personal guarantee by the appellant, although on this occasion he did not provide any further documentation.

After Avellierie failed to make payments, Croftwalk purported to assign its rights as creditor to the first respondent, a director of Croftwalk. Following a preliminary proof, the sheriff determined that the second loan was not recoverable against Mr Scott but ordered a further proof in relation to whether the personal guarantee made by Mr Scott in respect of the first loan had been assigned alongside the debt under the first loan of April 2017.

At the conclusion of the second proof, the sheriff held that the deed of assignation was effective to transfer both the rights under the Minute of Agreement that created the first loan and the rights under personal guarantee. The appellant submitted that the sheriff did not apply the correct principles of construction in reaching this conclusion.

Counsel for the appellant went on to submit that the sheriff’s construction required rewriting the contract, which was impermissible. She had used the benefit of hindsight and taken into account subjective intention, which in any event favoured non-assignation. For the respondent it was submitted that an assignation of debt will impliedly assign all rights of the cedent required to make the assignation effectual. The guarantee was necessary to give business efficacy to the assignation itself.

Independent interest

In his decision, Sheriff Principal Ross noted that the key issue had not yet been satisfactorily resolved by Scots law: “It is asserted that security rights are accessory to the claims that they secure, and that in principle when a secured claim is assigned, the security should follow the claim. The Moveable Transactions (Scotland) Act 2023 deals at section 16 with accessory security rights, but is not yet in force. It may be that disputes such as the present may shortly no longer arise. That does not assist with the present case, and does not resolve the question of how the law presently stands.”

Considering the appellant’s main argument, he said: “The appellant’s position is that the wording of the assignation is clear, and that there is no requirement or licence to depart from the plain words. In my view, that is correct. The appellant, however, has not placed sufficient reliance on the operative part of the assignation. It is true that the subject of the Deed of Assignation is the 2017 Minute of Agreement, and that the 2017 letter of guarantee is nowhere mentioned. That, however, does not resolve the question of what was assigned.”

He added: “The subject matter is the ‘claim of debt’, not just a debt. When it comes to ‘right, title and interest’, both the ‘right’ and ‘title’ to the claim of debt may be referable to the Minute of Agreement. The ‘interest’, however, is wider. Croftwalk has an interest in the claim of debt, in the form of a Personal Guarantee against Mr Scott. That interest is quite independent of the Minute of Agreement, and the drafting expressly includes it as part of the bundle of rights which were transferred to Mr McKinlay.”

Sheriff Principal Ross concluded: “On the appellant’s analysis, Croftwalk’s right and interest disappear notwithstanding that they are not assigned. The result is incoherent as a matter of law and offends against commercial common sense. A valuable right would lose its value without reward or gain to either party to the assignation.”

The appeal was accordingly refused.