Bankruptcy petition presented though application to set aside the statutory demand is outstanding

INTRODUCTION

Where a statutory demand in respect to a debt or debts (the 'debt'), is subject to an outstanding application to set it aside, can a bankruptcy petition properly/validly be presented to the court, in respect to that same debt?[1]. If a bankruptcy petition is presented in such circumstances, does its presentation, otherwise than in complance with section 267 of the Insolvency Act 1986 ('IA 1986'), render the petition void, a nullity, of not effect? What if the petitioner did not know of the outstanding application, when the bankruptcy petition was presented?

This article will consider these issues, in light of:

(1) section 267 of the IA 1986, entitled 'Grounds of creditor's petition'. This section appears in the Second Group of Parts to the IA 1986, entitled 'Insolvency of Individuals; bankruptcy debt relief orders' (the Second Group of Parts containing sections 251A to 385 inclusive);

(2) Ariyo v Sovereign Leasing Plc [1998] BPIR 177 ('Ariyo'), Court of Appeal (Nourse LJ; Roch LJ; Phillips LJ) on 3.7.97;

(3) Times Newspapers Ltd v Chohan (Limitation Periods) [2001] 1 WLR 184 ('Chohan'), High Court (Anthony Mann QC sitting as a Deputy High Court Judge[2]) on 18.10.00;

(4) Regis Direct Ltd v Hakeem [2012] EWHC 4328 (Ch) ('Regis'), High Court (Norris J) on 3.10.12;

(4) Webster v Ashcroft [2019] EWHC 2174 (Ch) ('Webster'), High Court (HHJ Paul Matthews (sitting as a Judge of the High Court)) on 8.8.19.

SECTION 267 OF THE INSOLVENCY ACT 1986

Section 267 IA 1986 reads (so far as presently material):

'...a creditor’s petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented...'[3]

There are then 4 requirements, each of which must be met. Section 267(2)(d) is the fourth requirement ('4th Requirement'), and it is the important one for present purposes[3a]. Section 267(2)(d) reads:

'there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts.'

As will be apparent:

(a) subsection 267(2) limits the circumstances when a creditor's (bankruptcy) petition may be presented to the court. More specifically, a creditor's (bankruptcy) petition may be presented, only if the 4 requirements are satisfied - the only one relevant to this article being section 267(2)(d) - that 'there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts.'

(b) importantly, the section also specifies 'at the time the petition is presented.'

So post presentation (or indeed, prior, but not ongoing) satisfaction of the 4 requirements, is not sufficient. As Nourse LJ (with whom Roch LJ and Phillips LJ agreed) in Ariyo said, s.267(2)(d) '...is clearly directed to the time at which the petition is presented. It is not directed to the time at which it is heard.' (paragraph 16);

(c) the section 267(2)(d) requirement (i.e. the 4th Requirement), is a negative requirement, in the sense that is requires that a certain state of affairs, does not exist;

For a pithy view on this provision, it is noted that in Sealy & Milman: Annotated Guide to the Insolvency Legislation 27th Ed. - 2024, the learned authors state: 'If an application is pending to set aside the statutory demand for payment of this debt, it falls outside the category of qualifying debts' - that is, qualifying debts upon which a bankruptcy petition can be presented.

IS THERE AN 'APPLICATION TO SET ASIDE A STATUTORY DEMAND'?

It might seen an obvious point, but it needs to be checked, whether there was an 'application to set aside a statutory demand', for one to have been outstanding, when the petition was presented. In other words, there must be something which amounts to an 'application to set aside a statutory demand', for there to have been, potentially, non-compliance with s.267(2)(d) IA 1986.

To amount to an 'application to set aside a statutory demand', there must be a formal application (to set aside the statutory demand); an informal application will not be sufficient. This point is made in Ariyo, where it was held that there had only been an informal application made to set a statutory demand aside (only a letter had been sent to the court[4]), and this was insufficient to amount to an 'application to set aside a statutory demand' (with the consequence that there could not have been a violation of s.267(2)(d)).

PRESENTATION OF A CREDITOR'S PETITION WHEN 4TH REQUIREMENT NOT SATISFIED

What however is the consequence of presenting a creditor's (bankruptcy) petition when the 4th requirement is not satisfied?

A number of points can be extracted from the authorities:

(1) the law now is to look at the consequences of a breach of the statutory requirement - in other words, look at the consequences of the non-compliance (here, the consequence of petition being presented when there is an outstanding application to set aside a statutory demand i.e. both the application to set aside a statutory demand and petition will be live at the same time), and ask the question: did Parliament intended total invalidity (of the petition) in such circumstances?

This was not always the approach. Formerly, the law had sought to categorise whether the statutory requirement under consideration, was 'directory' or 'mandatory' (Regis, paragraph 13). However, Norris J in Regis, recognised that the law had moved on from this approach. Norris J referred to: (a) the judgments of Woolf J in The Secretary of State for the Home Department v Ravichandran (Court of Appeal (Civil Division) May 21, 1999; and (b) the judgment of Lord Steyn in R v Soneji [2005] UKHL 49 ('Soneji'). In respect to Soneji, Norris J, at paragraph 15, quoted what Lord Steyn said, at paragraph 23 of Soneji:

'… the rigid mandatory and directory distinction, and its many artificial refinements, have outlived their usefulness. Instead, as held in Attorney General's Reference (No 3 of 1999), the emphasis ought to be on the consequences of non-compliance, and posing the question whether Parliament can fairly be taken to have intended total invalidity. That is how I would approach what is ultimately a question of statutory construction.'

(2) statutory construction (otherwise known as statutory interpretation), '...requires the court to ascertain the objective intention of the legislature as manifested by the language which it has chosen to use, interpreted in the context of the legislation as a whole and with due regard to its underlying purposes so far as they can reliably be obtained from admissible material.' (Lord Briggs (with whom Lord Hamblen JSC; Lord Stephens JSC; Lady Rose JSC; Lady Simler JSC agreed) in Brown v Ridley [2025] UKSC 7; [2025] 2 WLR 371, at paragraph 23)[5]

Applying this to s.267(2) IA 1986, the Court will, amongst other things, look at the context of the legislation, within which s.267(2)(d) IA 1986 sits. This involves looking at the surroundings sections that might have a bearing on the correct construction of s.267(2) IA 1986 - particularly - what Parliament intended would be the status of the petition (valid, vs void/nullity/of no effect), if there was non-compliance with s.267(2)(d) IA 1986. In Regis, Norris J referred to some IA 1986 sections; he said, at paragraph 16:

'Section 264 of the 1986 Act says that a petition may be presented against an individual in accordance with the following provisions of the Act by a number of identified petitioners. Section 264(2) says that subject to those provisions the court may make a bankruptcy order on any such petition. Section 266 bears the rubric of a preliminary condition and section 266(3) says:

“The court has a general power if it appears to it appropriate to do so on the grounds that there has been a contravention of the rules or for any other reason to dismiss a bankruptcy petition or to stay proceedings on such a petition and where it stays proceedings on a petition it may do so on such terms and conditions as it thinks fit.”

(3) Whether the petitioner, prior to presenting the petition, had knowledge of the existence of the outstanding application to set aside the statutory demand, is central to the effect of non-compliance with the 4th Requirement/s.267(2))(d), that Parliament intended:

(a) 'A petitioner who knows there is an outstanding application to set aside the demand knows he will not be able to establish that the debtor is unable to pay the debt...' (Regis, paragraph 21). In such circumstances, the inference from Regis, is that the petition ought to be void, a nullity, of no effect.

(b) Where the petitioner did not know of the outstanding application to set aside the statutory demand, when he presented the petition, Parliament did not, in such circumstances, intend that the petition would thereby be rendered void, a nullity, or of no effect. As Norris J put it in Regis, at paragraph 19 '...Parliament would not have intended that the petition issued by such a creditor should be void, a nullity and automatically of no effect.'[6]

However, while the petition is not thereby 'void, a nullity and automatically of no effect', the fact that a petition was presented when an application to set aside the statutory demand was outstanding (though unknown to the petitioner), is a factor though, which might mean that, the Court considers it appropriate to make an order under s.266(3) IA 1986 (quoted above; a wide and general power given to the Court), dismissing/staying (including on terms) the petition. Norris J set out these two points, while considering the facts in Regis. Norris J said, at paragraphs 19 and 20:

'A petitioner who knows there is an outstanding application to set aside the demand knows he will not be able to establish that the debtor is unable to pay the debt but that is not the position here. At the time when the petition was presented Regis did not know there was an outstanding application to set aside the statutory demand and they did not know that because through a combination of the court taking a bad point and [H's] inactivity no sealed application notice was issued and [H] had not, in accordance with the Insolvency Rule 7.43, served notice of his application on Regis.

A detailed look at Regis, is provided in a footnote[7].

(4) the 'application to set aside a statutory demand' must, as well as be known about by the petitioner, when presenting the bankruptcy petition, be a valid at the time application - that is - valid at the time the bankruptcy petition was presented (retrospective validation not being enough), or, to put it another way, there must be a valid application outstanding at the relevant time. This point emerges from Webster.

Webster

The (detailed) facts of Webster was set out in a footnote[8]. Suffice it to say, on 1.3.17, PC served D with a statutory demand dated 14.2.17, based on 2 costs orders made in PC's favour against D. On 17.3.17, D issued an application for an order, setting aside the statutory demand (the 'Set SD Aside Application'). However: (a) D had been, on 17.3.17, subject to an ongoing extended civil restraint order ('ECRO'), which caught the Set SD Aside Application (paragraph 16), but (b) D had failed to obtain ECRO permission ('ECRO Permission') before issuing the Set SD Aside Application. By virtue of PD3C, paragraph 3.3(1)(a), applications issued without the requisite ECRO Permission, are automatically dismissed[9].

On 21.7.17, D applied (by application) under the ECRO, for permission (to issue the Set SD Aside Application) (paragraph 4) retrospectively. On 7.8.17 (so, while that application for ECRO Permission was pending), PC had presented a bankruptcy petition (the 'Petition') against D. On 14.9.17, the 21.7.17 application, for ECRO Permission, was granted. On an unspecified date between 31.10.17 and 12.11.18, D paid off the 2 x costs orders (i.e. those underlying the statutory demand and Petition) (paragraph 6). On 9.3.18, the Set SD Aside Application was dismissed.

On 13.11.18, there was a hearing on the Petition. DJ Corrigan:

(a) dismissed the Petition, on the basis that the 2 x costs orders, underlying the statutory demand and Petition, had been paid off (paragraph 6).

(b) importantly, ordered D to pay PC's costs of the Petition (and made no order that PC pay D's costs of the Petition)(paragraphs 1 and 6). In reaching this decision, DJ Corrigan had (as summarised by HHJ Paul Matthews) taken '...into account the fact that the debt had been paid by the [D] only after the petition had been presented' (paragraph 6)

D appealed, contending that DJ Corrigan's costs order was wrong, on the basis, in essence, that:

(a) 14.8.17 grant of ECRO Permission had retrospectively validated D's Set SD Application. The Set SD Application had been (was deemed to have been) valid made from the start; therefore,

(b) PC had presented the Petition when the 4th Requirement, s.267(2)(d) was not satisfied (since there was now, a Set SD Aside Application outstanding when the Petition was presented. The effect of the absence of ECRO Permission (the Set SD Aside Application's automatic dismissal) - had retrospectively been dis-applied).

In his judgment, HHJ Paul Matthews:

(1) referred to Chohan, which involved that status of an application made to set aside statutory demand, which, at the relevant time (when the relevant petition had been presented), was 'out of time' and needed (but did not then benefit from) an extension of time from the Court. The Court in Chohan held that although an extension of time had later been granted, this did not change the position in respect to compliance, or not, with s.267(2) requirements, at the relevant time. HHJ Paul Matthews:

(a) at paragraph 21, referred to the following extract from the judgment in Chohan:

'23. … That paragraph means that there must be a valid application outstanding at the relevant time, that is to say one properly made and made in time. An application made out of time is not such an application. Technically, unless and until the court extends the time for making the application, it cannot be a valid application.'

(b) at paragraph 26, referred to the following extract from the judgment in Chohan:

'21. Mr Lamacraft's submissions on the point were advanced succinctly and can be shortly stated. He says that when Mr Deputy Registrar Brettle extended the time for making the application to set aside had the effect of relating back the application to set aside itself so that it should be treated as having been extant at the moment it was presented to the court…

22. Mr Morgan drew attention to the opening words of section 267(2) and in particular the words "at the time the petition is presented". That, he said, is the time at which one judges the question of the fulfilment of the requirements of the rest of the subsection, and in this case there was no outstanding application at the time of the petition. 'Application' means a valid and timeous application. Although there was an application of a sort outstanding, it was not in time and was therefore not valid. The subsequent extension of time for making the application did not have retrospective effect so as to deem something to be the case that was not in fact the case at the time the petition was presented…

23. I agree with the registrar that there was no breach of the requirements of paragraph (d). That paragraph means that there must be a valid application outstanding at the relevant time, that is to say one properly made and made in time. An application made out of time is not such an application. Technically, unless and until the court extends the time for making the application, it cannot be a valid application.'

As to this, HHJ Paul Matthews, at paragraph 27, said:

'The same reasoning, as it seems to me, applies to the present case. Indeed, in this case is even stronger. Applications to extend time are, as already noted, one of the few cases where there is any attempt at retrospectivity in the CPR. There is no trace of any such retrospectivity in the provisions relating to applications for permission under civil restraint orders to make applications in existing proceedings. If an application for an extension of time, subsequently granted, does not retrospectively validate an application to set aside a statutory demand so that for the purposes of section 267(2) there remains an outstanding application, then it can hardly be the case that an application made without permission under a civil restraint order could be validated retrospectively so as to produce that same effect for the purposes of this section.'

Accordingly, HHJ Paul Matthews, in essence, held, on the facts, when PC presented the Petition, there had not been a valid at the time Set SD Aside Application in existence (the later granting of the ECRO Permission did not change that). Furthermore, '...[PC], if she knew of the application made to set aside statutory demand, was entitled to take the view that it was automatically dismissed by virtue of PD 3C para 3.3(1)(a)' (paragraph 32) - so presumably, any such PC knowledge would not have changed matters either. The result was that PC had not presented the Petition when the 4th Requirement was not satisfied. Or, to put this another way, the 4th Requirement (s.267(2)(d) IA 1986 was satisfied, when the Petition was presented. The Petition had been properly presented. Consequently, DJ Corrigan's decision as to how to award costs, when the Petition was dismissed (following post petition presentation payment of the underlying debt), was dismissed as unmeritorious.

(5) where a Court is presented with a situation where there is both an application to set aside a statutory demand outstanding, and a presented petition, the Court should adjourn the petition, until the outcome of the application to set aside a statutory demand, is known. In Regis, Norris J held that the 1st instance DJ in that case had, when faced with this situation, been wrong to go on to consider the petition (and make the bankruptcy order). Norris J said, at paragraph 20:

'I do think ... DJ erred in law in making the bankruptcy order on [22.3.11]. The correct course to follow would have been to have adjourned the petition once it became clear [H's] application to set aside the statutory demand was outstanding. When the fate of that application was known, the petition could be restored and ruled on.'

BARRISTER

33 BEDFORD ROW

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[1] To be clear:

(1) an alleged creditor has served a statutory demand on an alleged debtor, in respect to certain debt/debts;

(2) the alleged creditor has then presented a bankruptcy petition against the alleged debtor, the bankruptcy petition being founded upon the same debt/debts and the alleged debtor's non-compliance with the (same) statutory demand; and

(3) there was, when the alleged creditor presented the bankruptcy petition against the alleged debtor, an outstanding application (i.e an undetermined application), issued by the alleged debtor, for an order, setting aside the said statutory demand.

In such circumstances, was the bankruptcy petition properly/validly presented? Or more particularly, is the petition void, a nullity, of not effect, because it was presented in such circumstances?

[2] later Mann J.

[3] Section 267(2) commences with 'Subject to the next three sections...' but there is nothing in s.267(3), (4) or (5) which is relevant. For completeness, the 3 subsections, following s.267(2), read:

'(3) A debt is not to be regarded for the purposes of subsection (2) as a debt for a liquidated sum by reason only that the amount of the debt is specified in a criminal bankruptcy order.

(4) “The bankruptcy level” is £5,000; but the Secretary of State may by order in a statutory instrument substitute any amount specified in the order for that amount or (as the case may be) for the amount which by virtue of such an order is for the time being the amount of the bankruptcy level.

(5) An order shall not be made under subsection (4) unless a draft of it has been laid before, and approved by a resolution of, each House of Parliament.'

[3a] For completeness, section 267(2) of the Insolvency Act 1986 reads:

'Subject to the next three sections, a creditor’s petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented

(a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level,

(b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured,

(c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay, and

(d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts.'

[4] In Ariyo v Sovereign Leasing Plc [1998] BPIR 177 ('Ariyo'), S obtained judgment in default ('JID') against A, for c.£4000. S served A with a statutory demand, founded upon that JID debt. Personal service occurred on either 31.5.91 or 1.6.91. The statutory demand contain the following (note: this is no longer the wording that goes in a statutory demand - see the end of this footnote, for the modern wording)

“Any application to set aside the demand (Form 6.4 in Schedule 4 to the Insolvency Rules 1986) should be made within 18 days from the date of service upon you and be supported by an Affidavit (Form 6.5 in Schedule 4 to those Rules) stating the grounds on which the demand should be set aside. The forms may be obtained from the appropriate court when you attend to make the application.”

On 18.6.91 (paragraph 5), A sent a letter dated 17.6.91 (paragraph 3)(the 'Letter') to the County Court, wherein he stated (paragraph 3):

“Dear Sir,

SOVEREIGN LEASING v. G ARIYO

Case No. 1990 S 397

APPLICATION FOR SET ASIDE STATUTORY DEMAND

I hereby apply to your Court to set aside the above demand on the grounds that I was not aware of the High Court Proceedings which led to it. I am sending a copy of this letter to the plaintiff's solicitors.

Yours faithfully”

The County Court received this 20.6.91. A said he also sent a copy of this Letter to S, but S said it never arrived.

As was later held, this Letter did not amount to 'an application in the prescribed form supported by an affidavit.' (paragraph 3)

On 18.7.91, S presented a bankruptcy petition against A (the 'Petition') , the Petition stating that the statutory demand had neither been complied with nor set aside and that no application to set it aside was outstanding (paragraph 5)

The Petition was endorsed with a return date 9.9.91. S served the Petition on A:

(a) A responded by chasing the Court about this Letter 'application';

(b) upon the Court providing A with the appropriate form, with blank affidavits (a second set, after a first set sent by the Court, was never received by A), A completed them, and lodged them with the Court on 9.9.91 (paragraph 6) ('September Application');

(i) failed to serve the September Application on S;

(ii) wrongly thought that because he had an issued September Application, the Petition would be stayed (and the 9.9.91 hearing would not, presumably, take place).

On 9.9.91 (paragraph 8):

(1) A did not attend the Petition hearing;

(2) a bankruptcy order was made against A.

On 15.9.91, the Court informed A that: (a) the September Application had been struck out (on the papers); (b) the 2.10.91 hearing had, accordingly, been vacated.

A then discovered the bankruptcy order.

A appealed, but the appeal was dismissed and the bankruptcy order affirmed (paragraph 9).

On a second appeal, in the Court of Appeal, one issue was whether the Letter '...ought to have been treated as an application to set aside the statutory demand.' (paragraph 17). It being argued that 'On that footing the [Petition], having been presented on [18.7.91], would have offended against section 267(2)(d).' (paragraph 17)

Nourse LJ (with whom Roch LJ and Phillips LJ agreed), at paragraph 17, said:

'In my view it is impossible so to treat the [Letter]. As the note in the statutory demand made clear, an application must be made in the prescribed form, supported by an affidavit in the prescribed form, and no doubt it requires the payment of a fee. Clearly, the [Letter] did not comply with those provisions and there was no power under Order 37, rule 5 or Order 13, rule 2 of the County Court Rules, on both of which [counsel for A] has relied, for the court to treat it as an application. Those provisions are solely concerned with proceedings which have been properly instituted and are already in existence. They confer no power on the court to treat an informal application made out of time as having been a formal application made within time. So for those short reasons it is clear that section 267(2)(d) was not offended. At the date of the presentation of the petition there was indeed no outstanding application to set aside the statutory demand.' (paragraph 17)

For completeness, the September Application did not avail A either - paragraphs 21-22. The (second) appeal was dismissed.

Since this decision:

(a) the Insolvency (England and Wales) Rules 2016 have replaced the Insolvency Rules 1986.

(b) Order 37 and Order 13 of the County Court Rules are no longer in force;

(c) most forms, save for a few, are no longer required in insolvency case; it is the information which must be in a documents, which is typically prescribed now;

There is Form IAA (the general application form). In the 'Guidance Notes for the Applicant in filling out Form IAA: Insolvency Act Application Notice' document, accompanying Form IAA, available here, it states in paragraph 1:

'Under the Insolvency (England and Wales) Rules 2016 (in force from 6 April 2017), all prescribed forms as required under the former rules have been abolished (save as permitted under paragraph 15 of Schedule 2 to the IR 2016 or in relation to an interlocutory application within an existing application or petition to which paragraph 14 of Schedule 2 to IR 2016 relates). In their place IR 2016 set out prescribed information, which should be set out in the form and the order required, unless circumstances require a departure from those requirements or the departure (whether or not intentional) is immaterial: IR 2016, rr 1.8 and 1.9(1).'

(d) a set aside application not longer has to be supported by an affidavit, it can be a witness statement*.

What then amounts for a 'formal' application, as distinct from an 'informal' application, has changed.

* Practice Direction (Ch D: Insolvency Proceedings), [2020] B.C.C. 698, paragraph 11.4 reads:

'11.4. Setting aside a statutory demand

11.4.1 The application and witness statement in support of setting aside a statutory demand, exhibiting a copy of the statutory demand, must be filed in court within 18 days of service of the statutory demand on the debtor. The time limits are different if the statutory demand has been served out of the jurisdiction: see r.10.1(10).

11.4.2 A debtor who wishes to apply to set aside a statutory demand after the expiration of 18 days, or if service is out of the jurisdiction, after the expiration of the time limit specified by r.10.1(10)(a) from the date of service of the statutory demand, must apply for an extension of time within which to apply to set aside the statutory demand. The witness statement in support of the application to set aside statutory demand should also contain evidence in support of the application for an extension of time and should state that to the best of the debtor’s knowledge and belief the creditor(s) named in the statutory demand has/have not presented a bankruptcy petition.'

For completeness, the rest of paragraph 11.4 reads:

'11.4.3 Unless the court to which the application to set aside is made operates Electronic Filing and Electronic Practice Direction 51O, the following applies:

(1) Three copies of each document must be lodged with the application, to enable the court to serve notice of the hearing date on the applicant, the creditor and the person named under r.10.1(3).

(2) Where copies of the documents are not lodged with the application, any order of the court fixing a venue is conditional upon copies of the documents being lodged on the next business day after the court’s order, otherwise the application will be deemed to have been dismissed.

11.4.4 Where the debt claimed in the statutory demand is based on a judgment, order, liability order, costs certificate, tax assessment or decision of a tribunal, the court will not at this stage inquire into the validity of the debt nor, as a general rule, will it adjourn the application to await the result of an application to set aside the judgment, order, decision, costs certificate or any appeal.

11.4.5 The court will determine an application to set aside a statutory demand in accordance with r.10.5.

11.4.6 Attention is drawn to the power of the court to decline to file a petition if there has been a failure to comply with the requirement of r.10.2.'

Endnote: The modern wording now on statutory demands, is:

'Rule 10.4(4) and 10.48 of the Insolvency Rules 2016 states that the appropriate court is the court to which you would have to present your own bankruptcy petition in accordance with Rule 10.11. In accordance with those rules on present information the appropriate court is [the High Court] [the County Court at Central London] [or] [County Court Hearing Centre]

...

If you wish to avoid a bankruptcy petition being presented against you, you must pay the debt shown on page 1, details of which are set out on page 2 of this notice, with the period of 21 days after its service upon you. Alternatively, you can attempt to come to a settlement with the creditor. To do this you should:
Inform the individual (or one of the individuals) named in Part B above immediately, that you are willing and able to offer security for the debt to the creditor’s satisfaction; or
Inform the individual (or one of the individuals) named in Part B immediately that you are will and able to compound for the debt to the creditor’s satisfaction.

If you dispute the demand in whole or in part you should:
Contact the individual (or one of the individuals) named in Part B immediately.

If you consider that you have grounds to have this demand set aside or you do not quickly receive a satisfactory written reply from the individual named in Part B whom you have contacted, you should apply within 18 days from the date of service of this demand on you to the appropriate court shown in Part A above to have the demand set aside.

Any application to set aside the demand should be made within 18 days from the date of service upon you and be supported by a witness statement stating the grounds on which the demand be set aside. The forms may be obtained from the appropriate court when you attend to make the application.
REMEMBER! From the date of service on you of this document
you have only 18 days to apply to this court to have the demand set aside, and
you have only 21 days before the creditor may present a bankruptcy petition'

[5] See this article, entitled 'Statutory Interpretation (Collatory Case)', by the same author, on statutory construction/statutory interpretation.

[6] Norris J also referred to reasons why the petitioner did not have knowledge of the set the statutory demand aside application. But this just seems to be Norris J explaining how the petitioner came to not have knowledge of the set the statutory demand aside application. In Regis Direct Ltd v Hakeem [2012] EWHC 4328 (Ch), Norris J said, at paragraph 19 and 20:

In those circumstances Parliament would not have intended that the petition issued by such a creditor should be void, a nullity and automatically of no effect. It seems to me that in those circumstances the petitioner correctly presented the petition, and the question that arises is whether under section 266(3) the court should dismiss it or stay it, and if staying it whether to stay it on terms or otherwise. That said, I do think Gill DJ erred in law in making the bankruptcy order on 22 March 2011. The correct course to follow would have been to have adjourned the petition once it became clear [H's] application to set aside the statutory demand was outstanding. When the fate of that application was known, the petition could be restored and ruled on.' [bold added]

[7] The (detailed) facts of Regis was set out in Endnote 1, at the end of this footnote. Suffice it to say, a statutory demand was served on a debtor ('H'), who responded, by applying to the High Court to have it set aside (the 'Set SD Aside Application'). The High Court used the wrong date, to calculate time, and demanded a fee be paid and did not process the Set SD Aside Application. Without any knowledge of the putative Set SD Aside Application, the creditor ('R') presented a bankruptcy petition (13.10.10) against H. H attended the bankruptcy hearing, explained about the Set SD Aside Application, but the DJ still made the bankruptcy order. That same day (i.e. the same day as the bankruptcy hearing), seemingly coincidentally, the High Court processed the Set SD Aside Application, and 3 days later, the High Court summarily dismissed the Set SD Aside Application (on its merits). H appealed the bankruptcy order, and was granted permission to appeal on the question: '...whether the condition in section 267(1)(d) of the Insolvency Act 1986 was satisfied when the bankruptcy petition was filed on [13.10.10]'

Looking then in more detail about what Norris J did on the appeal - Norris J posed the following question:

'what is the intention of Parliament in the event that (in breach of section 267(2)) a petitioner presents a petition when there is, unknown to the petitioner, an outstanding application to set aside a statutory demand? Is the petition a complete nullity and liable to be struck out automatically? Is any order made of a petition a nullity?' (paragraph 17)

In addressing this question, Norris J in Regis said, at paragraphs 18 and 19:

'The object of section 267(2)(d) is to prevent the presentation of a petition at a time when it is known to the petitioner that the petitioner will be unable to establish that the debtor is unable to pay the debt. That is because section 268(1) says that a debtor appears to be unable to pay a debt:

“… if, but only if, the debt is payable immediately and-

(a) the petitioning creditor to whom the debt is owed has served on the debtor a demand in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, 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.”

A petitioner who knows there is an outstanding application to set aside the demand knows he will not be able to establish that the debtor is unable to pay the debt...' [bold added]

Norris J then added, 'but that is not the position here' (paragraph 19). As to the facts in Regis, Norris J said, at paragraphs 19 and 20:

'At the time when the petition was presented Regis did not know there was an outstanding application to set aside the statutory demand and they did not know that because through a combination of the court taking a bad point and [H's] inactivity no sealed application notice was issued and [H] had not, in accordance with the Insolvency Rule 7.43, served notice of his application on Regis.

In those circumstances Parliament would not have intended that the petition issued by such a creditor should be void, a nullity and automatically of no effect. It seems to me that in those circumstances the petitioner correctly presented the petition...' [bold added]

But, this was not the end of the matter. As indicated above, Norris J identified that the Court could take into account the relevant circumstances, when determining under s.266(3) whether or not to dismiss or stay the Petition, rather than make an immediate bankruptcy order, upon it. Norris J said, at paragraph 20:

'...the question that arises is whether under section 266(3) the court should dismiss it or stay it, and if staying it whether to stay it on terms or otherwise.' (paragraph

Addressing this question, in respect to the facts in Regis, Norris J said, at paragraphs 20 to 22:

I therefore consider that [H's] point, although put too high, is correct. The bankruptcy order ought not then to have been made.'

In Regis, Norris J knew the outcome of the Set SD Aside Application. The result was known from the Registrar's decision 3 days after 22.3.11 bankruptcy order. This impacted what Norris J thought was appropriate for him to do. At paragraph 21 and 22, Norris J in Regis said:

'The question then is, what should be done? Under CPR 52.10 , this court sitting as an appeal court can affirm, set aside or vary any order or judgment made or given by the lower court. The lower court could have adjourned the petition to await the outcome of the application. I now know the outcome of the application. It was dismissed summarily. The correct course to take is to permit the bankruptcy order made by Gill DJ to stand.

That is because (a) on 25 March, three days after the order was made, the petitioning creditor was in a position to present an unimpeachable petition: but (b) the evidence submitted by [H] does not suggest that if such a petition had been presented and ruled on he would have had any answer to it (other than those which he has already brought before the court and which have been ruled on). He has not suggested in evidence that there is any factor of significance which would cause prejudice to him if the bankruptcy order were made on 22 March rather than immediately after 25 March 2011. I will accordingly affirm Gill DJ's order.'(see Endnote 2 - below)

So: (a) the DJ had been wrong to make a bankruptcy order on 22.3.11; rather (b) the DJ should have adjourned the Petition, until the outcome of the Set SD Aside Application had been known.

However, in terms of what to do with the appeal, given:

(a) Norris J had the outcome of the Set SD Aside Application (it was summarily dismissed), and

(b) the outcome had been decided only 3 days after the 22.3.11 (so was very proximate to when the bankruptcy order had (erroneously) been made), and with

(c) Norris J noting that '...there is no material before me to suggest that a bankruptcy order made today or a bankruptcy order made immediately after [25.3.11] would be less prejudicial to [H] than the bankruptcy order that was made on [22.3.11]' (paragraph 24),

Norris J decided that the '...simplest and fairest course...' (paragraph 24) was to '...affirm the existing order' (paragraph 24). Accordingly, the appeal (against the making of a bankruptcy order on 22.3.11) was dismissed.

When deciding to affirm the (original) bankruptcy order, the Norris J, in Regis, said, at paragraph 23:

'In so doing I am following the course taken by Vos J in De Toucy v Bonhams 1793 Limited [2011] DWHC 3809 (Ch) where at paragraph 83 he noted, having decided that the bankruptcy order had wrongly been made in that case:

“I will take it as read that I have decided that the decision made by the registrar was wrong. That does not necessarily mean that the appeal should be allowed because as Mr Gale pointed out, if in fact and on the material before me it is absolutely clear that a bankruptcy order should now be made and there is no point whatever in adjourning or sending the matter back for a re-hearing then it would be appropriate to make an order even at this late stage.”'

Endnote 1:

The facts of Regis Direct Ltd v Hakeem [2012] EWHC 4328 (Ch) were:

(1) in litigation, H was ordered to pay R's costs. R obtained a default cost certificate ('DCC') against H, for c.£18,000 (paragraph 2)

(2) on 16.8.10, R served on H, a statutory demand dated 5.8.10, founded upon non-satisfaction of the DCC (paragraph 2);

(3) on 22.8.10, R make an application for an order, setting aside the statutory demand ('Set SD Aside Application'). He made the Set SD Aside Application to the High Court;

(4) wrongly, the High Court refused to process the Set SD Aside Application, wrongly using the 5.8.10 date, rather than the 16.8.10 date, to calculate dates from. The High Court wrongly demanded a £30 fee. Set SD Aside Application lingered undealt with (paragraph 3)

(5) 'Entirely unaware of the making of that application to set aside the statutory demand, [R] presented a petition in the Luton County Court.' (paragraph 3). The petition (the 'Petition') was presented on 13.10.10, with a 1st hearing endorsed on it, of 14.12.10. However, substituted service only occurred on 25.1.11, so the 1st hearing date was revised to 22.3.11 (paragraph 3)

(6) On 22.3,11:

(a) the High Court confirmed the £30 fee would be cancelled (which had, on a date unknown, been paid by H).

(b) bankruptcy hearing in the County Court went ahead. H attended, and explained about his Set SD Aside Application.

(c) the DJ, noting H's account of the Set SD Aside Application, said there was a 'huge question mark' over H, for having left a Set SD Aside Application from August 2010, not pursued, by 22.3.11. The DJ made the bankruptcy order.

(d) the High Court processed the Set SD Aside Application, and on 24.3.11, a Registrar (who now would be called a Insolvency and Companies Court Judge) '...dismissed the application summarily on the footing that the demand was for a liquidated sum arising under a costs order and if there were any disputes about the costs order they could be considered at a later stage.' (paragraph 6). In other words, 3 days after the bankruptcy hearing/bankruptcy order, the outcome of the Set SD Aside Application was known (it was dismissed).

(7) H appealed the bankruptcy order, with permission to appeal being granted on the issue '...whether the condition in section 267(1)(d) of the Insolvency Act 1986 was satisfied when the bankruptcy petition was filed on [13.10.10]'

[8] The facts of Webster v Ashcroft [2019] EWHC 2174 (Ch) were:

(1) in 'long running litigation' (paragraph 3), one party ('PC') was awarded 2 costs orders (20.12.11 and 4.8.14) against the other ('D');

(2) in 2015, an extended civil restraint order ('ECRO') was made against D, duration 2 years (paragraph 4);

(2) on 1.3.17, PC served a statutory demand dated 14.2.17 on D (paragraph 3)

(3) on 17.3.17, D applied to County Court at Taunton ('CCT') for an order, setting aside the 14.2.17 statutory demand (the 'Set SD Aside Application') (paragraph 3).

(4) on 12.4.17, CTT transferred the Set SD Aside Application to the Bristol District Registry of the High Court (paragraph 3)

(5) on 26.4.17, the ECRO was extended for a further 2 years (paragraph 4)

(6) on 17.7.17, D applied (by email) under the ECRO, for permission (to issue the Set SD Aside Application) paragraph 4);

(7) on 21.7.17, D applied (by application) under the ECRO, for permission (to issue the Set SD Aside Application) (paragraph 4);

As a result,

(8) when D issued (17.3.17) his Set SD Aside Application, he had not already obtained permission under the ECRO to so issue. D only sought that ECRO permission, after the Set SD Aside Application had been issued, that is, on 17.7.17/20.7.17.

Further:

(9) on 7.8.17, while the ECRO permission was still pending, PC presented a bankruptcy petition in CCT against D, based on the 1.3.17 statutory demand (paragraph 4) (the 'Petition'). The Petition was endorsed with a return date

(10) on 14.9.17, HHJ Paul Matthews deal with the 21.7.17 ECRO permission, on papers, granting ECRO permission to D, to apply for set aside the statutory demand (paragraph 5)

(11) on 30.10.17, DJ Corrigan formally adjourned the Petition (paragraph 6)

(12) on 9.3.18, in the Bristol District Registry of the High Court, DJ Cope dismissed the Set SD Aside Application.

(13) on an unspecified date between 31.10.17 and 12.11.18, D paid off the 2 x costs orders (i.e. those underlying the statutory demand and Petition) (paragraph 6);

(13) on 13.11.18, there was a hearing on the Petition. DJ Corrigan:

(a) dismissed the Petition, on the basis that the 2 x costs orders, underlying the statutory demand and Petition, had been paid off (paragraph 6).

(b) importantly, ordered D to pay PC's costs of the Petition (and made no order that PC pay D's costs of the Petition)(paragraph 1 + 6). In reaching this decision, DJ Corrigan had (as summarised by HHJ Paul Matthews) taken '...into account the fact that the debt had been paid by the [D] only after the petition had been presented' (paragraph 6)

(14) D appealed DJ Corrigan's decision to award PC its costs of the Petition (and not to award D, D's costs of the Petition) (paragraph 1):

(a) permission to appeal was granted to D, on one ground (paragraph *)

'whether the order of [14.9.17] giving permission under the ECRO dated [23.3.15] (as extended ...) to apply to set aside the statutory demand dated [14.2.17] (served on the appellant on [1.3.17] retrospectively validated the application made without permission under the said ECRO by notice dated [17.3.17] to set aside the said statutory demand to a date before [7.8.17], so that at the time that the petition for the appellant to be adjudicated bankrupt was presented (on [7.8.17]) there was outstanding an application to set aside the statutory demand within section 267(2)(d) of the Insolvency Act 1986, so that the said petition could not be validly presented.'

(b) the appeal came before HHJ Paul Matthews, sitting as a Judge of the High Court.

(15) After confirming that D had needed ECRO permission, to commence the Set SD Aside Application (it was caught by the wording of ECRO), HHJ Paul Matthews considered the point about s.267(2)(d), from paragraphs 17 onwards.

[9] In Webster v Ashcroft [2019] EWHC 2174 (Ch), HHJ Paul Matthews, at paragraph 23, set out extracts from CPR Practice Direction 3C. He said

'CPR Practice Direction 3C, so far as relevant, provides:

"3.3. Where a party who is subject to an extended civil restraint order-

(1) … makes an application in a court identified in the order concerning any matter involving or relating to or touching upon or leading to the proceedings in which the order is made without first obtaining the permission of a judge identified in the order, the … application will automatically be … dismissed –

(a) without the judge having to make any further order;

…

3.4. A party who is subject to an extended civil restraint order may not make an application for permission … without first serving notice of the application on the other party in accordance with paragraph 3.5.

3.5. A notice under paragraph 3.4 must-

(1) set out the nature and grounds of the application; and

(2) provide the other party with at least seven days within which to respond."' [bold added]