Statutory Demands and Bankruptcy petitions

Ive dealt with a few cases lately where people have ignored statutory demands which have been served on them. It seems the reason for ignoring the demand is this mistaken belief that the debt pursuer would not proceed to a full blown petition.

The Office of Fair Trading (OFT) have placed numerous requirements on Consumer Credit Licence holders to ensure that they do not use statutory demands unless they truly intend to proceed to bankruptcy. So, NEVER ever take for granted that a statutory demand is a threat tool  or a bluff, unless of course you are prepared to be made bankrupt.

If you receive a stat demand, then my advice would be to seek legal advice. Statutory demands can be set aside if there are grounds to do so. If the debt is disputed for example then you may have a case to set the demand aside.

There is a wealth of help out there for people who receive these demands. This website has a helpful fact sheet which i have taken an extract from below

 

9. Setting aside a statutory demand
Someone has served me with a statutory
demand. What can I do if I disagree
with it?
Courts can set aside statutory demands but
will only do this if there is a genuine dispute
about whether the debt exists. A small
mistake in the statutory demand about the
amount owed will not make it invalid.
Individuals
Within 18 days of the statutory demand
being served on you, or within 18 days of the
date of the first advertisement (if the demand
was advertised), you may apply to the court
for the statutory demand to be set aside. If
you live abroad, the time limit for applying to
set aside the demand is 22 days.
You must apply to the court where you would
present your own bankruptcy petition, using
Form 6.4 (the application) and Form 6.5 (the
witness statement). You can get these forms
from a legal stationer or The Insolvency
Service website http://www.insolvency.gov.uk.
If the creditor who has filed the bankruptcy
petition is a Government department and the
statutory demand says that the petition will
be presented in the High Court, you should
apply to the High Court.
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If the debt is subject to a judgment and the
statutory demand says that the petition will
be presented in the High Court, you should
apply to the High Court.
If the deadline for you to apply to have the
demand set aside has passed, you may
apply for an extension of time to a Judge in
the High Court or to a District Judge.
From the time you file the application to set
aside the statutory demand, the deadline for
you to comply with it stops running.
In Form 6.5 you must say:
• when the statutory demand was served;
and
• why you believe it should be set aside.
You must file a copy of the statutory demand
with Form 6.4 and Form 6.5.
On receiving your application, the court may:
• dismiss it, without giving notice to the
creditor if it believes there is no good
reason for setting aside the statutory
demand; or
• grant the application to set aside the
statutory demand.
If the court dismisses your application, then
the deadline for you to pay or secure the
debt, which was suspended, will restart. So if
there were 12 days to run when it was
suspended, there will be 12 days to run now.
If the application to set aside the statutory
demand is not dismissed immediately, the
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court will fix a time for hearing the
application and give 5 business days’ notice
to:
• you or your solicitor;
• the creditor; and
• whoever is named in the statutory
demand as the person you should contact
about the debt.
The court may grant the application to set
aside the statutory demand if:
• the debtor appears to have a counterclaim,
set-off or cross-demand that is the
same as, or more than, the amount that is
in the statutory demand; or
• the debt is disputed on grounds that the
court thinks are substantial; or
• it appears that the creditor holds some
security, such as a mortgage, that has not
been disclosed or the court is satisfied
that the value of any security is more than
or the same as the amount claimed; or
• the court is satisfied on other grounds that
the statutory demand should be set aside.
The court will only set aside the demand if
injustice to the debtor would occur if the
creditor presented a bankruptcy petition
for the debtor’s non-compliance with the
demand. So if the court believes there
would be no injustice to the debtor, it will
not set aside the demand.
The reason for which a bankruptcy petition
may be presented is that the debtor has not
complied with the terms of a statutory
demand.
Technical or factual defects in a statutory
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demand will not necessarily mean that the
court will set it aside.
If the court dismisses the application to set
aside the statutory demand, it must make an
order authorising the creditor to present a
petition immediately or at a specified date.
Companies
Insolvency law does not specifically cover an
application by a company to set aside a
statutory demand. However, any person has
the right to defend legal proceedings, so a
company can apply to stop the process.
If the company has a valid defence to the
statutory demand, it can apply to the court to
stop the creditor presenting a winding-up
petition. Legal advice should be sought
before making application to the court.
If the company succeeds in its application to
stop the creditor presenting a winding–up
petition, the creditor will have to pay the
costs of the hearing

The forms you will need to set aside the demand can be accessed on this website http://www.bis.gov.uk/insolvency

There is also a very helpful comment from the High Court in the case of Hammonds (a firm) v Pro Fit USA Ltd where Mr Justice Warren made it very clear that the insolvency service is not to be a tool for debt collectors to use and abuse. He said…

 

27. So far as disputed debts are concerned, the practice of the court is not to allow the insolvency regime to be used as a method of debt collection where there is a bona fide and substantial dispute as to the debt. Save in exceptional cases, the court will dismiss a petition based on such a debt (usually with an indemnity costs order against the petitioner)…………………………………………………

When talking about disputes, it really does need careful consideration and a properly prepared affidavit. There are firms out there who undertake drafting of these documents for a nominal fee and it would be a good idea really if you are not sure what to do, rather than to risk bankruptcy and the devastation that it causes, to seek proper advice and get the papers prepared professionally. It is also worth noting that if you successfully oppose a stat demand then the costs should be recoverable from the opponent. So in real terms, you recover your bill from the other side and it may not cost you anything if you use a lawyer.

 

Its ultimately the individuals decision, but ignoring a statutory demand or a bankruptcy petition is in my view NOT AN OPTION