Insolvency – Bankruptcy – Bank transferring benefit of loans to appellant – Appellant appointing receivers of properties securing loans and serving statutory demand – Respondent applying to set aside statutory demand – Appellant applying for bankruptcy order – Court adjourning bankruptcy petition – Appellant appealing – Respondent applying to vary directions – Appeal allowed – Applications dismissed
A bank made loans to the respondent debtor, and to entities whose indebtedness he guaranteed, to fund the purchase of a number of residential properties and undeveloped land in Ireland. The respondent was resident in Ireland at the time and the loans were secured on those properties. The bank transferred the benefit of the loans, including the security, to the appellant petitioning creditor pursuant to the Irish National Asset Management Agency Act 2009.
The appellant appointed a receiver of the properties. The respondent became resident in the UK. The appellant served on the respondent a statutory demand under section 268(1)(a) of the Insolvency Act 1986. In accordance with rule 6.1(5) of the Insolvency Rules 1986, the demand specified the full amount of the debt, placed a value on the security, and claimed payment of the difference. Section 269 of the 1986 Act provided that in those circumstances the secured and unsecured parts of the debt were to be treated as separate debts.
The respondent applied to set aside the statutory demand relying on rule 6.5(4)(c) of the Insolvency Rules which provided that the court might grant such an application if the court was satisfied that the value of the security equalled or exceeded the full amount of the debt. A registrar concluded that the appellant’s expert report did not provide a valuation to show that the present value of the properties equalled or exceeded the full value of the debt, as required by rule 6.5(4)(c). Therefore there was no dispute for the purposes of the application. He dismissed the respondent’s application for an extension of time to adduce expert evidence and the set aside application. He gave the appellant permission to present a bankruptcy petition forthwith. When his appeal against that decision was dismissed by High Court, the respondent applied under section 375 of the 1986 Act for the court’s orders be varied or rescinded.
The appellant appealed against an order of the chief registrar adjourning its bankruptcy petition and making directions pending the hearing of the respondent’s section 375 application. The respondent also applied to vary the chief registrar’s directions and for specific disclosure of documents.
Held: The appeal was allowed. The applications were dismissed.
A debtor applying to set aside a statutory demand under rule 6.5(4)(c) had to prove on the balance of probabilities that the value of the security, determined on a forced sale basis as at the time of the statutory demand or possibly at the time of a hearing, equalled or exceeded the full amount of the debt. Rule 6.5(4)(c) so required irrespective of the identity, status, functions, objectives and policies of the creditor, in the present case a statutory body with specific functions and objectives. In the light of the requirements imposed on the respondent by rule 6.5(4)(c), there was no doubt that the s.375(1) application was bound to fail on the merits because the further evidence sought to be adduced, consisting of a further supplemental report by the respondent’s expert, together with the valuations sought by the disclosure application, could not possibly enable the respondent to prove on the balance of probabilities that the present value of the properties equalled or exceeded the full amount of the debt: Platts v Western Trust & Savings Ltd [1993] BPIR 339; [1993] EGCS 75 considered; Appleyard v Wewelwala [2012] EWHC 3302 (Ch); [2013] 1 WLR 752 and Sands v Layne [2024] EWHC 3665 (Ch); [2014] PLSCS 319 not followed.
The further evidence sought to be adduced could not realistically or arguably support a contention that the present value of the security equalled or exceeded the full amount of the debt. Whilst a proposed further supplemental report might well demonstrate that the properties, so far as they were development sites, could increase substantially in value over a future period, it would not demonstrate that the present value of the properties equalled or exceeded the full amount of the debt.
In those circumstances, the court would allow the appeal, dismiss the section 375(1) and disclosure applications, and make the bankruptcy order.
Jeremy Goldring QC and Susannah Markandya (instructed by Edwin Coe LLP) appeared for the appellant; Hilary Stonefrost (instructed by Portner & Jaskel LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click to read transcript: National Asset Loan Management Ltd v Cahillane
