"Can an individual faced with a statutory demand set it aside on the ground that England and Wales is not the forum to make a bankruptcy order?" This was the question considered by Chief ICC Judge Briggs in Anthony Lyons v Bridging Finance Inc [2023] EWHC 1233 (Ch).
In this case, Mr Lyons had applied under Rule 10.4 of the Insolvency (England and Wales) Rules 2006 ("the Insolvency Rules") to set aside a statutory demand made against him by Bridging Finance Inc under Section 268 of the Insolvency Act 1986 ("the IA 1986"). Chief ICC Judge Briggs dismissed Mr Lyons' application.
In his judgment, Chief ICC Judge Briggs firstly pointed out that, whilst a statutory demand is neither a bankruptcy petition nor a court process, relevant to the case was that the nature of a statutory demand under section 268 IA 1986 is to establish a debt for the purpose of presenting a bankruptcy petition.
The Judge then went on to outline the four instances in which an application to set aside a statutory demand can be granted under Rule 10.5 (5) of the Insolvency Rules. These four grounds are as follows:
- The debtor appears to have a counterclaim, set-off or cross demand which equalled or exceeded the amount of debt specified in the demand;
- The debt was disputed on grounds which appeared to be substantial;
- The creditor held some security in relation to the debt claimed, and either Rule 10.1 (9) was not complied with in relation to it or the court was satisfied that the value of the security equalled or exceed the full amount of the debt; or
- The court is satisfied, on other grounds, that the demand ought to be set aside.
Whilst it was agreed by all parties that a challenge to forum can only concern ground (d), being "on other grounds", Chief ICC Judge Briggs relied on guidance in Re a Debtor, No 1 of 1987 [278 A], which states that ground (d) should be read in conjunction with grounds (a)-(c).
Re a Debtor, No 1 of 1987 involved a statutory demand that had been made in the wrong forum and misstated the debt; it was successfully argued that it would be unjust to allow the demand to stand. In contrast, in the present case, Mr Lyons did not dispute that the debt was owed, just that the demand for the debt was made in the wrong forum.
However, rule 10.5 of the Insolvency Rules, concerned with setting aside a statutory demand, is confined to considering the nature of the debt as demanded. There is no requirement for a statutory demand to make any statement about forum (in contrast to a petition, which does). Therefore, Chief ICC Judge Briggs dismissed the application to set the demand aside, on the basis that, when read in conjunction with grounds (a)-(c) and the requirements of a statutory demand under the Insolvency Rules and IA 1986, ground (d) does not permit an argument to be submitted which is wholly unrelated to the debt or unrelated to the form of statutory demand as prescribed.
However, Chief ICC Judge Briggs did note that his judgment did not mean that Mr Lyons was necessarily without a remedy. Instead, Mr Lyons could make an anti-suit injunction (although he noted such applications were not commonly made) or alternatively, await the bankruptcy petition and apply for a stay of the petition pending the outcome of a preliminary issue, that issue being whether the jurisdiction of England and Wales is the appropriate one for the making of a bankruptcy order.
Creditors and debtors alike should take note that, whilst the wrong forum argument cannot be successfully used as a basis for an application to set aside a statutory demand, debtors can still employ this defence at another suitable stage, which might include seeking injunctive relief.
Our specialist team of Insolvency lawyers are well placed to advise on the correct use of statutory demands and also how to respond to these if received.
