The court has a limited discretion not to make a bankruptcy order where the debt is the subject of an unsatisfied statutory demand as at the time of the bankruptcy petition hearing. The case of Adeosum v Revenue and Customs Commissioners (the Revenue) confirmed this to be the position. In this case the debtor entered into a contract with the Revenue in relation to his unpaid tax but failed to comply with its terms. The Revenue served a statutory demand and then a bankruptcy petition when the demand was not complied with.
The initial hearing of the petition was adjourned for settlement as the debtor advised he could obtain a £50,000 loan – this would settle the debt, however the debt remained unsatisfied.
When the petition next came on for hearing, the registrar made the bankruptcy order on the basis that the debt was undisputed. Furthermore the loan had not been completed and several promises to pay had not been met. The registrar also took into account that if made bankrupt, the debtor), would have his contract with the NHS terminated as he was a General Practitioner. Nevertheless the registrar made the order.
The debtor appealed against the order for bankruptcy by submitting that the registrar had failed to consider his reasonable offers to pay. He also claimed that the order had a draconian effect on the debtor’s employment, and that accordingly he had not had a fair trial under Article 6 of the European Convention on Human Rights. It could be said that the grounds of appeal may have included the “kitchen sink” if this were an available legal ground.
The appeal court held that the registrar only had limited discretion in such a case. Although hardship was to be taken into account, it was not determinative where the debt could not be paid. The debtor had had ample opportunity to be heard and to pay the debt and had made numerous promises to pay. It could not be said he had not had a fair trial nor was there a lack of proportionality.
What should a debtor with a bankruptcy petition consider?
Sympathy with a debtor's plight is not a legal ground to resist a petition, especially where a statutory demand has been served and remained unsatisfied.
If there is no dispute as to the underlying debt and the debtor has had ample opportunity to make payment but has failed to do so then the Court usually applies the law as provided under the Insolvency Act. This case will be a useful reminder of that position where it is perceived that a registrar is being "soft" on a debtor
If you have been served with a statutory demand and am facing possible bankruptcy, Benchmark Solicitors can assist you with this.
Alternatively, as a creditor, there are situations when the service of a statutory demand can “prompt” a debtor to pay. We can assist with the debtor being “prompted”.
At Benchmark Solicitors we can advise you on the validity of a statutory demand.
Paul Rogers, Solicitor – 12 June 2012