Setting aside a statutory demand

If a statutory demand is served then the court rules provide a mechanism by which that statutory demand can be challenged. This is by way of setting it aside. You have 18 days from service of the statutory demand in accordance with rule 6.4 of the Insolvency Rules 1986 to do something about it.

Statutory demands form a critical part of insolvency law. The statutory demand is the entire basis (apart from unsatisfied execution) on which bankruptcy petitions are based. Therefore it is crucial that they are either appropriately proceeded with or appropriately challenged as the case may be. Bankruptcy is not a game. Someone should only pursue someone in order to make them bankrupt if the circumstances justify it.

Insolvency rule 6.5 sets out the procedure to be followed on a challenge to the statutory demand. There are a number of grounds on which a statutory demand can be set aside. One can be the existence of a counterclaim set off etc. This is all about a situation where the alleged debtor has something allegedly owing to the alleged creditor which ought to be taken into account as part of the alleged claim. Another argument can be that the debt alleged pursuant to the statutory demand is not properly due. This is described as the debt being disputed on grounds which the court considers to be substantial. If there is any doubt it ought to be resolved in favour of the debtor.

Bankruptcy petitions deal with the question of what ought to be happening in such circumstances. The court is not obliged to make a bankruptcy order even if there is a failure to provide proper details of all financial transactions and changes of position. The court will sometimes take failure to provide proper details as evidence of bankruptcy. If someone is made bankrupt, then in broad terms that draws a line under their debts and they can move on. There is thus a compelling reason for allowing bankruptcy as part of the range of options available to entrepreneurs. At the same time it is vital that it is not made so easy so that people think it is best just go bankrupt on the basis that there is no real difficulty.