Statutory demands: individuals and companies compared

Two thresholds, drafted differently

A bankruptcy petition requires the debt, or the aggregate of the debts, to be equal to or exceed the bankruptcy level, which section 267(4) sets at £5,000. The debt must also be for a liquidated sum and unsecured. For a company, section 123(1)(a) deems it unable to pay its debts where a creditor owed “a sum exceeding £750 then due” has served a demand in the prescribed form and the company has for three weeks neglected to pay, secure or compound for it, which founds a petition under section 122(1)(f).

The wording matters at the margin: £5,000 is met at exactly £5,000, but £750 must be exceeded. Nor is a demand a precondition. Section 268(1)(b) accepts unsatisfied execution on a judgment for an individual, and section 123(1)(e) and (2) let a creditor prove a company’s cash flow or balance sheet insolvency directly.

Individuals: 18 days, and what filing does to the clock

An individual’s application to set aside must be made within 18 days from the date of service, and the demand itself must say so. Where it is served out of the jurisdiction, rule 10.1(10) replaces the 18 and 21 days with the appropriate number of days in the table accompanying the Practice Direction supplementing Section IV of CPR Part 6, plus four and plus seven days respectively.

Filing stops the clock: under rule 10.4(5) the time for compliance ceases to run on the date the application is filed, and section 267(2)(d) bars a petition while an application to set aside is outstanding. But the court may dismiss an application without notice to the creditor if no sufficient cause is shown, and time then runs again from the date of dismissal. A thin application buys very little.

Missing the 18 days is not fatal but it changes the application. The Practice Direction: Insolvency Proceedings (paragraph 11.4.2) then calls for an application for an extension of time, and the witness statement in support should state that, to the best of the debtor’s knowledge and belief, the creditor has not presented a bankruptcy petition.

The grounds, and where they run out

Under rule 10.5(5) the court may set the demand aside if:

• the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the demand;
• the debt is disputed on grounds which appear to the court to be substantial;
• the creditor appears to hold security for the debt and either rule 10.1(9) has not been complied with or the value of the security equals or exceeds the full amount of the debt; or
• the court is satisfied, on other grounds, that the demand ought to be set aside.

A cross-claim smaller than the demanded debt does not meet the first ground. Rule 10.1(9) requires a secured creditor to value its security and claim the full debt less that value; where the demand merely undervalues it, the court may order amendment rather than set aside. Where the debt rests on a judgment, order, costs certificate, tax assessment or tribunal decision, paragraph 11.4.4 of the Practice Direction says the court will not at this stage inquire into its validity. If the application fails, rule 10.5(8) requires an order authorising the creditor to present a petition.

Companies: the injunction route

A company demand must state that the company has the right to apply to the court “for an injunction restraining the creditor from presenting or advertising a petition for the winding up of the company” and name the court to which that application must be made. The GOV.UK guidance is blunt: a demand served on a company cannot be challenged, and the company’s course is to apply to stop the creditor winding it up.

The forum differs too. Setting aside a demand is Local Business under paragraph 3.7 of the Practice Direction. An inherent jurisdiction injunction to restrain a winding-up petition may be listed before a High Court Judge or ICC Judge, but before a District Judge sitting in a District Registry only with the Supervising Judge’s consent (paragraphs 3.3 and 3.4). There is no counterpart to rule 10.4(5), so nothing in the rules suspends the three weeks while the company deliberates.

Schedule 10 to the Corporate Insolvency and Governance Act 2020 in its final form imposed a £10,000 minimum and a 21-day notice seeking proposals, but only for a relevant period that ended with 31 March 2022. Nothing comparable is in force.

Service decides when every period starts

For an individual, rule 10.2 requires the creditor to do all that is reasonable to bring the demand to the debtor’s attention and to serve personally if practicable. Where service was not personal and not acknowledged, the certificate of service must give a date by which the demand will have come to the debtor’s attention, and rule 10.3(6) deems service on that date unless the court determines otherwise. That date drives both the 18 and the 21 days.

For a company, section 123(1)(a) specifies service “by leaving it at the company’s registered office”. The Practice Direction states in terms that a statutory demand is not a court document (paragraph 5.5). Interest not previously notified, and other accruing charges, must be separately identified and limited to what has accrued at the date of the demand (rules 10.1(7) and (8) and 7.3(2) and (3)). Where a bankruptcy petition is based solely on a demand, only the debt claimed in the demand may be included (paragraph 12.2.2).