Challenging a Statutory Demand

Statutory Demand

A Statutory Demand is treated as valid unless and until it is set aside by the court. You have only 18 days in which to apply to the court to set the Statutory Demand aside. If you do not do this in time and a bankruptcy petition is presented against you, the right is lost.

How to apply to the court

The steps required to apply to the court are:

  • The application to set aside the statutory demand must be issued by the court.
  • The application form must be accompanied by a witness statement.
  • The application will be stamped with the court seal and given a hearing date.

Once this happens, the time for compliance with the statutory demand stops running until the application is decided by the court.

Responsibility is yours for making sure that the documents:

  • are in the right form
  • set out sufficient cause to challenge the demand
  • are sent to the right court
  • are received by the court.

If any of these does not happen, the application may not be issued in time and you will have to apply to the court for an extension of time. The bankruptcy petition could be issued whilst you are waiting for this application to be heard.  To prevent this you may have to apply to the court for an injunction.

This could be an expensive and risky process and so it is important to get the application to set aside the statutory demand right.

If you do not apply to set aside the statutory demand, or you do so and fail, you can still challenge a bankruptcy petition on the same grounds. However, the presentation of a bankruptcy petition has legal consequences for you and the court generally takes the view that the correct way to challenge the basis of the claim that you owe money to the creditor, is by way of an application to set aside the statutory demand.

This too could be an expensive and risky process and so it is important to have your legal arguments properly prepared and put to the court at the right time.

What next?

After the application to set aside the statutory demand is issued by the court:

  • The court sends the issued application and witness statement to the creditor
  • There is a hearing at which the court may decide the application or give directions as to the filing of further evidence
  • If necessary, there will be a further hearing at which a decision will be made
  • There is a right of appeal to a more senior judge
How does the court decide whether to set aside the statutory demand?

The court may set aside the statutory demand if:

  • There is a genuine dispute on substantial grounds
  • You have a counterclaim, cross-demand or set-off that is equal to or exceeds the debt
  • There is other good reason to do so.

It is not enough to say that a debt is disputed.  You must satisfy the court that there is a real dispute and that the creditor should bring a claim to the court and obtain a judgment before you can be made bankrupt.  But you should bear in mind that:

  • An argument that the incorrect amount is claimed may not be sufficient if it is clear that part of the money is due
  • If the creditor already has a judgment against you, it will be necessary to apply to the court to set the judgment aside or to appeal as well as applying to set aside the statutory demand
  • A decision of the Tax Tribunal cannot normally be challenged.
Taking legal advice

It may be possible to avoid having to use this procedure.  If there are grounds on which to set aside a statutory demand that has been served on you, a letter setting this out in the right way may persuade them to withdraw the statutory demand.  A creditor who refuses to withdraw a statutory demand which is subsequently set aside by the court, may well have to pay some of the debtor’s legal costs in having to carry on with the application. You should take legal advice on this at an early stage given the tight time limits imposed by the court.

It will be apparent from what we say above that there are many legal issues that can arise in connection with an application to set aside a statutory demand and we can assist you with them including:

  • Advising on whether there is a genuine dispute on substantial grounds
  • Advising on whether you have a counterclaim, cross-demand or set-off that is equal to or exceeds the debt
  • Ensuring that the documents are properly prepared and issued in time
  • Corresponding the creditor and their solicitors
  • Preparing your legal arguments
  • Representing you before the court.

Our solicitors are happy to advise on these and other legal issues in connection with an application to set aside a statutory demand.

For more information proceed to Serving a Statutory Demand