Posted: Wednesday, 28 March 2018 @ 16:16
given a Personal Guarantee to a creditor of a debt payable by another person
company or organization, the creditor has made a formal demand and followed it
up with service of a Statutory Demand. What should you do?
all you must act quickly. To avoid a bankruptcy petition you must make payment
to the creditor within 21 days of service of the Statutory Demand or secure it
or compound it to the creditor’s satisfaction.
if you have a dispute over the legality of the Personal Guarantee or the amount
of the debt? It may be possible to persuade a court to set aside the Statutory
You should first of all contact the creditor giving your reasons for
disputing the debt, and provide any documentary evidence, and invite them to
withdraw the Statutory Demand. But keep your eye on the clock because if they
refuse or fail to reply you must lodge an application to set aside with the
court within 18 days of service of the Statutory Demand.
10.5(5) of the Insolvency Rules 2016 provides 5 grounds on which a court can set
aside a Statutory Demand:
The debt is disputed on substantial grounds
The debtor has, or appears to have a counterclaim or set off
which, if successful, would bring the net indebtedness below £5000 for the value
of the debt
The creditor hold security for the value of the debt
The court is satisfied on other grounds that the demand ought to
be set aside
now look at the first ground. If you have a genuine dispute about the debt-and
here I mean a legal defence, then you should apply immediately and within the
required 18 day period from service of the Statutory Demand to the court to
have the Demand set aside.
will constitute “substantial grounds”?
is whether there is a “triable issue”. Hopeless cases will not pass this test,
but the bar is set quite low.
The courts currently take the view that unless
there is no real prospect of success then the dispute has to go to court for
determination and this means that the Statutory Demand is inappropriate and
will be set aside. So only some prospect of success must be demonstrated. But
it is very important to construct any argument well, and urgent legal advice
should be obtained before making an application to court.
consider that you have a good case to apply then Set Aside Applications are
governed by Rules 10.4 and 10.5 of the Insolvency Rules. It may be a good move
to make an application anyway, as once it is filed in court then the 21 day
time period is suspended until the application has been determined or
dismissed. This could buy you some time for negotiation.
now confirm the main rules you should take note of.
Period :the Set
Aside Application must be made by you within 18 days (which
will be clear days) from the date of service of the Statutory Demand.
Content of the Application: you will
be able to get the appropriate forms from the Court Office.
10.4(3) sets out what information the Set Aside Application must contain.
Briefly, the Application must:
1. Identify the debtor
2. State that the Application is for an order to have the Statutory
Demand set aside
3.Give the date of the Statutory Demand
4. Be dated and authenticated by the debtor or someone authorised
to act on their behalf
10.4(6) also provides that the Set Aside Application must be
supported by a witness statement and a copy of the Statutory Demand (if the
debtor has it in his possession). The witness statement must set out:
1. The date the debtor became aware of the Statutory Demand
2. The grounds on which the debtor claims that it should be set
aside. Namely that you have a defence and provide details.
3. Any evidence in support
Statutory Demand must be exhibited "if it is in the debtor's
Applications must be made to the debtor's own hearing centre in accordance with
Rule 10.48 (subject to the conditions outlined in that rule). That should be
set out in Part A of the Statutory Demand.
Courts' power to dismiss: Rule
10.5(1) and (2) provide that a court may, on receipt of a Set Aside
Application, dismiss it if it considers it to be baseless, without giving
notice to the creditor. The time for the debtor to comply with the Statutory
Demand will then run again from the date the Set Aside Application is
dismissed. This will buy you time.
Venue: If the
Set Aside Application is not dismissed on paper, the court must fix a venue for
it to be heard, and must give at least 5 business days' (which
will be clear days) notice to the debtor (or their solicitor), the creditor and
"whoever is named in the Statutory Demand as the person with whom the
debtor may communicate about the demand".
determination or adjournment: When the
Set Aside Application is initially heard, the court will consider the evidence
available and may either summarily determine the Set Aside Application (i.e. rule in
either party's favour on summary basis) or adjourn the hearing giving appropriate directions
summary hearing will be listed for about 20 minutes, at which the court will
adjourn with directions for a more substantial hearing. In practice the parties
may agree their own directions and adjourn by consent.
Order - Dismissal
court dismisses the Set Aside Application, it must make an
order authorising the creditor to present a Bankruptcy Petition either as soon
as possible or at a date specified by the court.
costs are normally awarded on applications, so if you succeed in having the
Demand set aside normally you will be awarded any legal costs and fees, particularly if you have prior to the application given full reasons to the creditor and invited them to withdraw. But if
you lose you will be ordered to pay the creditor’s legal costs and fees.
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation
to discuss your particular circumstances.