CG66010 - Losses: loans to traders: payments under guarantee
TCGA92/S253 (4)(b)
A claim under TCGA92/S253 (4) requires that the guarantor has made a payment UNDER THE GUARANTEE (TCGA92/S253 (4)(b) ).
Where a demand has been issued under the terms of the guarantee, there should be no problem in accepting that the payment was made under the guarantee - you will, of course, need to be satisfied that all other conditions for relief under Section 253 (4) are met before granting relief. However, where a payment has been made without the issue of a demand you will need to consider whether the payment was under the guarantee.
The first question to consider is whether the terms of the written guarantee required a demand to be issued. If they did not, then unless there are unusual circumstances pointing to a different conclusion, there should be no difficulty in accepting that the payment was under the guarantee. But you may encounter cases where, although the terms of the written guarantee require the issue of a demand, no demand has in fact been issued. In these circumstances, the absence of a written demand will not of itself be sufficient for us to conclude that the payment was not made under the guarantee. You will have to look at the wider factual context in which the payment was made. This might include
- evidence that the lender had discussed with the guarantor proposals to discharge the original borrower's liabilities
- details of any payments made where the money paid over either went directly to the lender or, although it went to the original borrower, it was not at that person's disposal since that person was merely acting as a conduit through which the money passed on its way to the bank
- evidence on behalf of the parties that the payment was to be considered as satisfaction or partial satisfaction of the guarantor's liability (for example, correspondence between the lender and the guarantor, or board meeting minutes which show the payment was being made as a result of liabilities under the guarantee).
It is likely that in most cases the information suggested above will enable you to decide whether the payment was made under the guarantee. In cases where there is little or no evidence to support the assertion that the payment was under the guarantee and payment went to a person other than the lender, it may be appropriate to refuse the claim on the grounds that the payment was not made under the guarantee. It could instead constitute a loan to the recipient. As such it may potentially qualify for relief under Section 253 (3), but you would need to be satisfied that all the necessary conditions for relief under Section 253 (3) were met, particularly that the loan was recoverable when made, see CG65957