INDIVIDUALS AND STATUTORY DEMAND.

31 August 2018

• Solicitors Liverpool
• insolvency proceedings
• disputed debt
• individual debtors
• statutory demand
• creditor
• winding up proceedings
• bankruptcy petition
• Insolvency rules
• cross-demand counterclaim
• secure creditor
• dispute of liability
• debt dispure liverpool

What are the necessary steps to take when an individual is served a disputed statutory demand?

One option is to contact the creditor to dispute the statutory demand, which will lessen costs for both parties, however a statutory demand must be responded to within 21 days, therefore this could be problematic if a response is not received from the creditor within this time frame.

If no response is received from the creditor, then the next step is to submit an application to the appropriate court (Usually the court that set out the statutory demand itself) to set aside a statutory demand under the recent Insolvency Rules (6^th April 2017).

Since the introduction of the new Insolvency Rules, prescribed forms are now eradicated, therefore the application must be made through Form 6.4, as well as a witness statement in Form 6., including a copy of the statutory demand as an exhibit. The application must be issued to the court within 18 days from the date of service of the statutory demand.

The application must include the following details:

• The debtor’s information.
• The date of the statutory demand.
• State that the application is for the statutory demand to be set aside.
• The application must be authenticated and date by the debtor or an authorised person.
• The witness statement which should include the date when statutory demand was received by the debtor, why the statutory demand is being set aside, and any further evidence.

Three copies of the application must be lodged at the court for issuing.

If an application is produced outside of the deadline, the court can hear the application, as long as the debtor applies for an extension of time and is granted this extension by the court. A debtor is usually only granted extended time for good reason.  The Practice Direction on Insolvency Proceedings (2014) provides further information on this matter via paragraph 13.3.5.

The court’s decision to set aside a statutory demand considers the following grounds set out in the IR 1986 (April 2017):

• There must be substantial grounds for disputed debt.
• Ensure that the creditor is secure and has not waived their security.
• The debtor has a cross-demand counterclaim which either equals or exceeds the debt.
• The court must be satisfied with the overall grounds of the claim and can therefore set aside the statutory demand.

On the occasion that the debtor provides evidence to support their dispute of liability relating to debt owed, the debtor must also produce evidence that this is in relation to a material matter. If no valid defence is produced, then the court will decide against setting aside the statutory demand.

It is important to note that just because a debtor has a cross-claim does not mean the statutory demand will automatically be set aside. An example of this is the case of Howell v Lerwick Commercial Mortgage Corporation, in which Mr Howell issued a counter-claim alongside his appeal to set aside the statutory demand, although this did not include disputed debt, as he claimed that his counter-claim equalled or exceeded the debt due. However, the court came to the decision that the counter-claim was not sufficient enough to abolish the debt, and therefore dismissed the counter-claim and ruled against setting aside the statutory demand.

If the court decides to consider the application it will then list it for hearing, giving a notice of five business days to allow the creditor, the debtor or the debtors solicitor, and any other parties named in the statutory demand to prepare for the hearing.

If after the hearing the court is satisfied with the application in line with the IR 1986 (6^th April 2017), and are therefore willing to set aside the statutory demand, it will then follow with an official order, inclusive of costs.

The court will also then give permission to the creditor to pursue a bankruptcy or winding-up petition, if they wish to do so.

The court may also request further evidence to support the case from all parties before a final hearing.

If a court ultimately decides against setting aside an application then the court does not necessarily have to inform the creditor, and once the application is dismissed, then the statutory demand will run again from the date of dismissal.