A High Court battle is set to determine whether Azzurro Associates, a debt buyer ultimately owned by the hedge fund Elliott Management, has the right to pursue two small business directors for repayment under personal guarantees initially arranged through Funding Circle.
The case, closely watched by the alternative lending industry, centres on claims that potential flaws in Funding Circle’s documentation and processes may invalidate the personal guarantees assigned to Azzurro.
Azzurro Associates is taking legal action against two directors of a borrower, seeking to enforce debts allegedly owed under personal guarantees. However, in an interim ruling last year, Judge Terence Phillips found that the two guarantors had a “real prospect of success” in arguing that sums due were not, in fact, payable to Azzurro or Funding Circle.
The judge said there was a “more than arguable case” that certain documentation concerning the transfer (“assignment”) of rights might not constitute legal assignments of the underlying debts. Furthermore, he suggested that the wording of Funding Circle’s definition of “lender” could restrict the right to enforce guarantees to a narrow class of creditors, potentially excluding Azzurro.
Industry observers say the case could raise broader questions about the validity of personal guarantees transferred through Funding Circle’s lending platform. While both Azzurro and Funding Circle assert the overall enforceability of such guarantees remains sound, any judgment against Azzurro could complicate the market for secondary debt.
Support authors and subscribe to content
This is premium stuff. Subscribe to read the entire article.
