Insolvency – Debt – Statutory demand – Appellant appealing against decision dismissing application to set aside statutory demand by respondent and disputing debt – Appellant relying on cross-claim falling short of debt by less than £750 – Whether statutory demand to be set aside – Appeal dismissed
The appellant had approached the respondent company to obtain finance to develop a property in Penarth, in the Vale of Glamorgan in South Wales. He paid the respondent £2,750 to obtain a valuation of the property but subsequently alleged that the valuation report was sub-standard. As a result the appellant said he had experienced delay in the development which had delayed receipt of the proceeds of sale and income from the development. He brought a claim against the respondent for losses said to have been caused by the allegedly sub-standard report. The appellant entered a judgment against the respondent, which was later set aside with the appellant being ordered to pay costs. When the appellant failed to pay those costs, the respondent served a statutory demand on the appellant. The appellant applied to set aside the statutory demand on the basis that he had a cross-claim equal to or exceeding the sum admitted to be due. That application was dismissed by the district judge. The appellant appealed, contending that the district judge should have valued his cross-claim at a higher figure.
Rule 6.4 of the Insolvency Rules 1986 (SI 1986/1925) provided that the debtor might apply to the court for an order setting aside a statutory demand. Rule 6.5(4)(d) provided that the court might grant such an application if it was satisfied, on other grounds, that the demand ought to be set aside.
Section 267(2) of the Insolvency Act 1986 provided that a creditor’s petition might be presented to the court in respect of a debt or debts only if, at the time the petition was presented, (a) the amount of the debt, or the aggregate amount of the debts, was equal to or exceeded the bankruptcy level of £750.
Held: The appeal was dismissed.
(1) The district judge should have valued the appellant’s arguable cross-claim at a higher figure, falling short of the debt by between about £690 and £550. That raised a question whether a statutory demand should be set aside where a debtor appeared to have a cross-claim which did not equal or exceed the amount of the demand, but if set against the demand would reduce the balance to below £750. In a case such as the present, the appropriate course was not to set aside the statutory demand under the residual discretion in rule 6.5(4)(d).
(2) The combined effect of section 267(2)(c) and 268(1) of the 1986 Act was that the only immediately payable debts which would justify presentation of a petition were those which were either judgment debts, where execution had been returned unsatisfied, or debts which had been the subject of a statutory demand which hanot been complied with. There was no rule that a debt had to be at least £750 before it could be made the subject of a statutory demand. Under section 267(2)(a) it was enough if the aggregate amount of the petitionable debts was at least £750. If that was right, it followed that a statutory demand for a debt of less than £750 was not on that basis alone bad or liable to be set aside under the residual discretion under rule 6.5(4)(d). The demand gave the creditor the ability to use the debt, if the demand was not complied with, as part of the basis for the presentation of a bankruptcy petition and it might be useful for the creditor to be in that position.
(3) If there was no suggestion of any other debts, the decision of the Court of Appeal in Re a Debtor (Nos 49 and 50 of 1992) [1995] Ch 66 indicated that the statutory demand should be set aside, but if there was, the same did not follow. In the present case, the debt itself was not disputed but the appellant relied on a cross-claim which did not equal the debt but fell short of it by less than £750. If there were suggestions of other debts owed by the debtor to the creditor, then it could not be said that any petition would inevitably fail. The creditor might very well be in a position to turn his other claims into petitionable debts (by making statutory demands) and hence rely on them in support of the petition. If it could not be said that any petition would inevitably fail, it followed that the court should not set aside the statutory demand under rule 6.5(4)(d).
The appellant appeared in person; The respondent did not appear and was not represented.
Eileen O’Grady, barrister
