Statutory demand: 3/3 – Setting aside a Statutory Demand

In the final article of our series on Statutory Demands, we discuss setting aside a statutory demand.

How to dispute a statutory demand

It is often the case, that where a statutory demand has been served on a debtor, the debtor wishes to dispute its validity.  In order to circumvent the statutory demand, a typical next step of a debtor in the appropriate circumstances is to make an application to the court to have the statutory demand set aside pursuant to Insolvency Law 6.4(1) of the Insolvency Rules 1986.

Criteria to satisfy

The court has the power to grant a debtor’s application to set aside a statutory demand where one of the following criteria apply:

  1. The debt is disputed on substantial grounds.
  2. The debtor appears to have a counterclaim which equals or exceeds the amount of the debt.
  3. The creditor holds security to the value of the debt.
  4. The court is satisfied on other grounds that the demand ought to be set aside.

With various creditors seeking to use the statutory demand and bankruptcy procedure in order to avoid the otherwise long and drawn out County Court money claim procedure, it is inevitable that certain claims which otherwise would have been issued in the County Court will end up being dealt with by creditors by way of a statutory demand.

However, a statutory demand and the insolvency procedure is not the appropriate forum in the event that the debt is disputed and in the event that a disputed debt is the subject of a statutory demand (and this can be demonstrated and evidenced to the court) the court has the power to make an order that the statutory demand be set aside.

Timescales to set aside a statutory demand

The debtor has 18 days from the date of service of the statutory demand on him or her (clear days) to make an application to set it aside.  There is no fee payable to the court on the filing of an application to set aside a statutory demand and no bankruptcy order should be made pursuant to any subsequent petition while there is an outstanding application to set aside a statutory demand which has not yet been determined.

The court in this instance should either exercise its power to dismiss the petition or to stay it until the outcome of the application to set aside the statutory demand is known.

When no application is made

Where a debtor (particularly where acting in person without legal representation) does not apply to set aside a statutory demand, he or she may be (but is not guaranteed to be) allowed at a bankruptcy hearing to raise arguments concerning the dispute of the debt.

It is important to note however, that the debtor who has unsuccessfully raised an argument on an application to set a statutory demand aside cannot repeat that argument in respect of a new statutory demand based on the same debt.

In light of the above it is important to be sure to seek legal advice from the outset of any such matter.

If you are a debtor and are subject to either a statutory demand or insolvency proceedings or in the event that you are a creditor who is seeking to recover unpaid debts, please contact our litigation solicitors in Leeds, Wakefield, Bradford and Manchester on 0113 244 9931.