04 October 2019 - Written by Sarah Mower

Use of a statutory demand to recover monies

A statutory demand may be served in respect of a debt that is “payable immediately” (Section 268(1) of the Insolvency Act 1986 (“IA86”)). Sums due under a personal guarantee (“PG”) generally become payable on demand as opposed to on or by a specific date.

The recent case of Martin -v- McClaren Construction Ltd [2019] EWHC 2059 (Ch) provides a useful reminder that:-

  • A written demand for payment in compliance with the terms of the PG is usually required in order to trigger liability prior to serving a statutory demand.
  • An earlier statutory demand which stated that the sum demanded is “payable immediately” will not itself constitute demand under a PG which requires a written demand to be sent to the debtor before liability is triggered.
  • The Court should be slow to exercise its discretion against setting aside a statutory demand where the essential prerequisites to issuing a bankruptcy petition have not been met, such as where the creditor has not, prior to serving the statutory demand, made valid demand under a PG. Failure to do so will mean that the debtor’s “inability to pay” has not been established – a statutory requirement for presentation of a bankruptcy petition (Section 267(2) IA86).

In the Martin case, the High Court agreed to set aside a statutory demand made in respect of a liability under a PG on the grounds that the creditor had failed to make a demand in compliance with the terms of the guarantee and had therefore failed to satisfy the provisions of Section 268(1) IA86, i.e. that the debt was payable immediately. The creditor’s failings were found to be of substance and not simply of form, notwithstanding the fact that the debtor remained liable to the creditor under the terms of the PG.

If you are considering enforcement of a PG (or alternatively if you are facing a liability under a PG) please feel free to contact our Business Services team to discuss your options.

Sarah Mower specialises in business insolvency and restructuring within the Business Services department at Barker Gotelee Solicitors in Suffolk.

Suffolk Insolvency Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email [email protected]