Making someone bankrupt part 8

Last week we looked at the content of the statutory demand and saw that the demand can only be relied upon if "at least three weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules."

However there is an exception to this general rule arising from the provisions of section 270. That provides that, "In the case of a creditor's petition presented wholly or partly in respect of a debt which is the subject of the statutory demand under section 268, the petition may be presented before the end of the three-week period there mentioned if there is a serious possibility that the debtor's property or the value of any of his property will be significantly diminished during that period and the petition contains a statement to that effect."

This is thus a means of making sure that the whole process is speeded up if in practice there is a serious possibility that there will be a significant diminution in value during the three-week period. There will not only have to be a statement to that effect in the petition, but there will be have to be grounds to justify it. Absolute proof is not required, but mere suspicion would be inadequate. You would have to have facts which could be put forward which would objectively justify the alleged risk. For example, an alleged debtor who was engaged in speculative ventures who was "going for broke" and losing money hand over fist. Someone who was taking steps which could reasonably be supposed to be attempts to hide property. Someone who knew that the end was inevitable and therefore spending money like water to enjoy themselves while they still could. Needless to say evidence of dishonest conduct, although not necessary, would probably be extremely useful.

In order to rely on this provision for expedition the statutory demand actually has to have been served. The insolvency rules provide under rule 6.18 that the petition is not to be heard until at least 14 days after it was served on the debtor, but provides that the court may (on such terms as it thinks fit) hear the petition at an earlier date if it appears that the debtor has absconded, or the debtor consents to such earlier hearing, or the court is satisfied that it is a proper case for an expedited hearing. Therefore not only can the period for the statutory man be abridged, but there can be an expedited hearing.

Whilst the court can expedite the hearing, section 271 (2) provides that if there is a statement within the petition so that section 270 applies, nonetheless "the court shall not make a bankruptcy order until at least three weeks have elapsed since the service of any statutory demand in section 268.".

As in all such matters there is a balance to be struck. Creditors have to be protected from defaulting bankrupts or prospective bankrupts getting rid of their property to make sure that there is nothing left for the creditors, but at the same time it is important to ensure that a creditor does not use the provisions to effectively "steamroller" matters to an early finish by making allegations which in practice give the alleged debtor no proper opportunity to respond to matters.

The standard way for a debtor to seek to challenge the statutory demand is by an application to set it aside. Just because the debtor has launched an application to set aside the statutory demand does not mean that an expedited petition cannot be heard, although of course the court will want to be satisfied that it is not making someone bankrupt when the circumstances do not justify it and in particular where they have a tenable argument regarding the alleged debt. Just as the court will want to ensure that a creditor is not using the procedure unfairly so as to steamroller the bankrupt, so also the court will want to ensure that the debtor is not playing the system when there is nothing really that can be said to properly prevent a bankruptcy petition, but where delay might prejudice creditors.

Next week we will look at the application to set aside a statutory demand.