What are the reasons that can be given for a debtor not complying with a statutory demand? What are the defences? Can they avoid liquidation at a High Court winding up proceeding?
Section 289 of the Companies Act 1993 enables a creditor to issue a statutory demand to a company for a debt that is both due and payable. Issuing such a demand is a significant step that warrants careful consideration. If the indebted company fails to comply with the statutory demand within 15 working days, it is assumed to be insolvent. Consequently, the creditor may apply to the court to initiate the process of liquidating the company, which entails engaging a lawyer to serve a notice for winding up proceedings.
Before issuing a statutory demand or pursuing any legal action, seeking legal advice is strongly recommended. This ensures that you follow proper procedures and that your claim is indeed valid.
Challenges to a Statutory Demand
A debtor can challenge a statutory demand for various reasons, including:
a) Dispute over the debt: If they contest the amount stated in the statutory demand, they can use this as a reason for non-compliance. A genuine dispute over the debt can serve as a valid defence.
b) Incorrect jurisdiction: Arguing that the matter should be heard in the Disputes Tribunal.
c) Defective demand: If the statutory demand fails to meet legal requirements (e.g., incorrect form, missing information), it may be deemed defective.
d) Procedural errors: If there are procedural missteps in the issuance of the statutory demand, this may be used as a defence. This can include service at the wrong address.
e) Set-off or counterclaim: If they possess a valid counterclaim, this can be a legitimate defence.
f) Other legal defences: Depending on the specific circumstances, there may be additional legal defences available.
Within 10 working days a notice to set aside can be filed by the debtor detailing why the statutory demand process is not valid. The Court will consider the argument and if "the Court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the Court may (a) order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or (b) dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation, on the ground that the company is unable to pay its debts (Section 291(1))".
How can liquidation be Avoided when a Statutory Demand has Expired and Proceedings have Advanced?
To avoid liquidation in a High Court winding-up proceeding, there are steps a debtor can take even after a statutory demand has expired (post 15 working days from service). These include:
a. Negotiating to establish an alternative arrangement, such as a repayment plan, to potentially halt the proceeding.
b. Seeking professional advice from insolvency experts or specialized lawyers for guidance on settlement options, creditors compromises, voluntary liquidation, and other potential defences.
c. Presenting evidence to the court demonstrating solvency and the capacity to meet financial obligations.
d. Proposing a Company Compromise to creditors as an alternative to liquidation (Part IV Companies Act 1993).
The above are options when the 10 working days period from service has expired and an application to set aside the statutory demand within that timeframe has not been filed.
When can an Application to put a company into liquidation be rejected by the High Court?
There are several valid reasons an application may be rejected by the Court:
a. Lack of jurisdiction: If the court lacks the authority to hear the case, the application may be rejected.
b. Procedural errors: If there are mistakes in filing the application, the court may reject it. This may include service to the wrong address.
c. Insufficient evidence: If the evidence provided is insufficient to support the application, it may be rejected.
d. Matters already resolved: If the issue has been previously settled through legal proceedings, the court may reject a new application.
Failing to promptly address a statutory demand can lead to liquidation.
In receipt of a statutory demand? Contact our team promptly to discuss your company's available options.