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.
David Bloom of David & Goliath, the firm advising the two guarantors, alleges that shortcomings in how the loans and guarantees were handled cast doubt on whether Azzurro can enforce any of the personal guarantees it acquired from Funding Circle. He described the situation as a “shambles” and “totally unprofessional.” Both Azzurro and Funding Circle strenuously reject his characterisation.
While it is no longer party to the direct claim, Funding Circle maintains that the loans were validly entered into, and that money owed under the personal guarantees should be recoverable. Lisa Jacobs, chief executive, said, “We’re really confident in our position,” while Lucy Vernall, the lender’s chief legal officer, insisted there has been “no finding that a guarantee was not enforceable or that monies were not due to Azzurro.”
The company says even if any issues with its processes are uncovered at trial, they are “unlikely” and would be resolvable. Azzurro, for its part, contends it is “confident that the claim will be successful at trial.”
With the High Court process under way, an eventual ruling on the enforceability of personal guarantees could shape the future of personal finance obligations, especially in the alternative lending sector. Should the judge side with the borrowers, it may prompt a re-examination of legal frameworks around debt assignments and the terms of personal guarantees—potentially affecting thousands of loans.
Azzurro’s and Funding Circle’s arguments will be tested in full at trial. Until then, the commercial lending industry will be watching closely, mindful that this is more than just a legal tussle: it could set a precedent for how small business debt is enforced and traded in the UK.
