Bankruptcy – Statutory demand – Application to set aside – R 6.5(4) of Insolvency Rules 1986 – Whether debt disputed on substantial grounds where statutory notice served by respondent unclear as to how amount of demand derived and including sums other than loan in respect of which demand made – Whether applicant having cross-claim against respondent in sum equalling or exceeding demand on grounds of sale of property at an undervalue – Application allowed
Pursuant to a facility letter dated June 2006, the respondent advanced a loan of £3.876m to the applicant, secured by a first legal charge over a property in the Cotswolds, near Chipping Norton, Oxford. The property comprised an estate extending to 329 acres of land and a quarry, stone from which was to be used to construct a manor house pursuant to an existing planning permission.
The applicant failed to repay the loan. In August 2010, the respondent made a formal demand for repayment of more than £4.372m and appointed receivers pursuant to the charge. The receivers obtained two valuations of the property, both in the region of £3m; in reaching those figures, the valuers had been instructed to disregard any potential value attributable to the quarry. The receivers sold the estate for £2.8m in March 2011. The relevant sale contract was signed by the receivers but, in order to achieve a sale free of other outstanding charges, the actual transfer was executed by the respondent. The respondent then informed the applicant that there was a residual debt of more than £1.9m and, in November 2011, served a statutory demand on the applicant for that sum.
The applicant applied to set the demand aside, pursuant to r 6.5(4) of the Insolvency Rules 1986, on the grounds that: (i) the debt was disputed on substantial grounds, within r.6.5(4)(b); and (ii) he had a counter-claim or set-off that equalled or exceeded the amount of the debt, within r 6.5(4)(a). So far as the applicant disputed the amount of the demand, it became apparent from the respondent’s evidence that the sum demanded included not only £1.6m due under the loan but also an outstanding balance on the applicant’s bank account. As to the potential cross-claim, the applicant contended that the property had been sold at a substantial undervalue by disregarding any value attributable to the quarry. On that issue, the respondent denied that it, as opposed to the receivers, owed any duty to the applicant in that respect since the receivers had acted as the applicant’s agent under the terms of the charge; It further submitted that the quarry had no value in circumstances where the permission to extract the stone had expired by the date of the sale.
Held: The application was allowed.
(1) The way in which the respondent had expressed the amount claimed in its demand was unsatisfactory. The respondent had got its figures wrong. Its own explanation had led to more confusion and demonstrated that those preparing the demand did not fully appreciate how the debt was derived. Where it had chosen to proceed by way of statutory demand, it should have been able to set out its claim in clear and simple terms. It was under an obligation to provide particulars of the debt and it had failed to do so. Although the demand purported to set out the total debt under the loan, the amount of the demand including sums that did not fall within the definition of the loan in the facility letter. A creditor was not entitled to rely on another debt that was not stated in the demand: Bennett v Filmer [1998] BPIR 444 applied. However, the mere fact that the debt was over-stated in a statutory demand was not itself a ground for setting aside the demand. In view of the fact that the applicant accepted that there was a loan and that sums were outstanding under that loan, the defects in the statutory demand were not sufficient to justify setting aside the demand.
(2) However, the demand should be set aside on the ground that the applicant had a potential cross-claim that was equal to or exceeded the demand. The cross-claim was based on an allegation that the respondent had sold the property in the exercise of its power of sale and, as such, owed a duty to the applicant to obtain the best price reasonably obtainable. Although the receivers had entered into the contract of sale as agent for the applicant, the relevant transfer had been executed by the respondent, in order to sell free of outstanding charges. Moreover, where there was evidence that a mortgagee had directed or interfered with the activities of receivers, the receivers would be treated as the agents of the mortgagee. While no direct evidence had been advanced of any interference, the way in which the respondent had put its evidence before the court and the fact that the valuers had been instructed to disregard the quarry raised questions about the dealings between the respondent and the receivers in relation to the sale. Those questions would be of crucial importance and involved matters of fact that could only be resolved at a trial. There were triable issues as to whether the respondent owed a duty of care to the applicant either because of its execution of the transfer or by reason of the level of interference that it had exercised over the receivers.
As to the amount of the cross-claim, the loan had taken account of the value of the quarry at the time when that loan was advanced. It was intended that a large house would be built on the estate using stone extracted from the quarry. Although the relevant planning consents had since expired, and notwithstanding the change in market conditions between 2006 and 2010, it was surprising that no value had been attributed to the quarry and that development potential that included the value of the stone on the land had been completely ignored. The respondent or the receivers might have been expected to investigate the prospects of obtaining a further planning permissions for development in similar to terms to the one that had expired or for the separate exploitation of the quarrying site. On the balance of probability, the applicant had a potential cross-claim that equalled or exceeded the amount of the demand.
Richard Clegg (instructed by Cubism Law) appeared for the applicant; David Peters (instructed by TLT Solicitors) appeared for the respondent.
Sally Dobson, barrister
Bankruptcy – Statutory demand – Application to set aside – R 6.5(4) of Insolvency Rules 1986 – Whether debt disputed on substantial grounds where statutory notice served by respondent unclear as to how amount of demand derived and including sums other than loan in respect of which demand made – Whether applicant having cross-claim against respondent in sum equalling or exceeding demand on grounds of sale of property at an undervalue – Application allowedPursuant to a facility letter dated June 2006, the respondent advanced a loan of £3.876m to the applicant, secured by a first legal charge over a property in the Cotswolds, near Chipping Norton, Oxford. The property comprised an estate extending to 329 acres of land and a quarry, stone from which was to be used to construct a manor house pursuant to an existing planning permission.The applicant failed to repay the loan. In August 2010, the respondent made a formal demand for repayment of more than £4.372m and appointed receivers pursuant to the charge. The receivers obtained two valuations of the property, both in the region of £3m; in reaching those figures, the valuers had been instructed to disregard any potential value attributable to the quarry. The receivers sold the estate for £2.8m in March 2011. The relevant sale contract was signed by the receivers but, in order to achieve a sale free of other outstanding charges, the actual transfer was executed by the respondent. The respondent then informed the applicant that there was a residual debt of more than £1.9m and, in November 2011, served a statutory demand on the applicant for that sum.The applicant applied to set the demand aside, pursuant to r 6.5(4) of the Insolvency Rules 1986, on the grounds that: (i) the debt was disputed on substantial grounds, within r.6.5(4)(b); and (ii) he had a counter-claim or set-off that equalled or exceeded the amount of the debt, within r 6.5(4)(a). So far as the applicant disputed the amount of the demand, it became apparent from the respondent’s evidence that the sum demanded included not only £1.6m due under the loan but also an outstanding balance on the applicant’s bank account. As to the potential cross-claim, the applicant contended that the property had been sold at a substantial undervalue by disregarding any value attributable to the quarry. On that issue, the respondent denied that it, as opposed to the receivers, owed any duty to the applicant in that respect since the receivers had acted as the applicant’s agent under the terms of the charge; It further submitted that the quarry had no value in circumstances where the permission to extract the stone had expired by the date of the sale.Held: The application was allowed. (1) The way in which the respondent had expressed the amount claimed in its demand was unsatisfactory. The respondent had got its figures wrong. Its own explanation had led to more confusion and demonstrated that those preparing the demand did not fully appreciate how the debt was derived. Where it had chosen to proceed by way of statutory demand, it should have been able to set out its claim in clear and simple terms. It was under an obligation to provide particulars of the debt and it had failed to do so. Although the demand purported to set out the total debt under the loan, the amount of the demand including sums that did not fall within the definition of the loan in the facility letter. A creditor was not entitled to rely on another debt that was not stated in the demand: Bennett v Filmer [1998] BPIR 444 applied. However, the mere fact that the debt was over-stated in a statutory demand was not itself a ground for setting aside the demand. In view of the fact that the applicant accepted that there was a loan and that sums were outstanding under that loan, the defects in the statutory demand were not sufficient to justify setting aside the demand.(2) However, the demand should be set aside on the ground that the applicant had a potential cross-claim that was equal to or exceeded the demand. The cross-claim was based on an allegation that the respondent had sold the property in the exercise of its power of sale and, as such, owed a duty to the applicant to obtain the best price reasonably obtainable. Although the receivers had entered into the contract of sale as agent for the applicant, the relevant transfer had been executed by the respondent, in order to sell free of outstanding charges. Moreover, where there was evidence that a mortgagee had directed or interfered with the activities of receivers, the receivers would be treated as the agents of the mortgagee. While no direct evidence had been advanced of any interference, the way in which the respondent had put its evidence before the court and the fact that the valuers had been instructed to disregard the quarry raised questions about the dealings between the respondent and the receivers in relation to the sale. Those questions would be of crucial importance and involved matters of fact that could only be resolved at a trial. There were triable issues as to whether the respondent owed a duty of care to the applicant either because of its execution of the transfer or by reason of the level of interference that it had exercised over the receivers.As to the amount of the cross-claim, the loan had taken account of the value of the quarry at the time when that loan was advanced. It was intended that a large house would be built on the estate using stone extracted from the quarry. Although the relevant planning consents had since expired, and notwithstanding the change in market conditions between 2006 and 2010, it was surprising that no value had been attributed to the quarry and that development potential that included the value of the stone on the land had been completely ignored. The respondent or the receivers might have been expected to investigate the prospects of obtaining a further planning permissions for development in similar to terms to the one that had expired or for the separate exploitation of the quarrying site. On the balance of probability, the applicant had a potential cross-claim that equalled or exceeded the amount of the demand.Richard Clegg (instructed by Cubism Law) appeared for the applicant; David Peters (instructed by TLT Solicitors) appeared for the respondent.Sally Dobson, barrister