Recent court rulings have reaffirmed that the test for a ‘disputed debt’ within the insolvency regime requires an assessment as to whether the dispute alleged is based on substantial grounds and concerns a genuinely triable issue, and the requirement that the debt not be the subject of a cross claim/demand etc.
The authorities are clear: any dispute will not render a debt unliquidated. Rather the dispute has to raise a substantial issue or ground that is genuinely triable. This was recently illustrated in Popely v Popely [2023].
A dispute between family members led to the appellant issuing a petition under s.994 of the Companies Act 2006, who was then the subject of an order for security for costs, whereby he was ordered to pay £30,000 for security for costs and £18,000 in costs. The petition was initially stayed and subsequently struck out when the appellant did not comply with the order.
The respondents issued a statutory demand, evidenced by the outstanding costs orders. The appellant attempted to have the demand set aside on the basis that he had a valid cross demand – that being the s.994 petition. The judge determined that as the s.994 petition the appellant was seeking to rely on had been struck out, it did not raise a genuinely triable issue and therefore was not sufficient to warrant setting aside the statutory demand. Accordingly the application to set aside the demand was dismissed.
In Emmott v Michael Wilson & Partners Ltd [2022], which involved a number of issues and claims, the High Court made the following noteworthy points:
And finally, the recent case of Dusoruth (A Bankrupt), Re [2022] the Chancery Division of the High Court reaffirmed that claims in tort, here a claim for restitution for unjust enrichment, are not based on a liquidated sum.
Interestingly in this case, the debtor’s application to annul the bankruptcy order under s.282 of the IA86 on the basis that the bankruptcy order should never have been made because it was not based on a liquidated sum as required by s.267 of the IA86, was in fact unsuccessful.
The applicant was the ultimate beneficial owner of a parent company which owned several subsidiary companies, one of which was the respondent. Liquidators of the respondent company claimed the applicant had benefited from unjust enrichment by using company assets for personal gain. The liquidators presented a bankruptcy petition against the applicant on the basis the claim was for restitution for unjust enrichment and therefore they need not quantify their claim. The applicant was declared bankrupt. The applicant had not responded to the petition at all, had he done so he would have been successful.
The court determined the claim for restitution for unjust enrichment was indeed not a liquidated sum – reason being that unless and until the applicant was found to have been unjustly enriched, it could not be said his liability in respect of the same was certain and therefore liquidated – however it went on to find that it saw no reason to treat bankruptcy petitions made based on unliquidated sums differently to those based on disputed debts, when considering applications to annul. The applications are both made on the basis that the petitioner does not have the standing to present the petition and is unable to satisfy the requirements of the IA86. In the circumstances of the present case, the court was not convinced either of these bases were satisfied and as a result, exercised its discretion not to annul the bankruptcy order.
These recent cases serve as a reminder to creditors that claims for unliquidated sums, or liquidated sums which are the subject of a substantial dispute and/or counterclaim/set-off, should not be pursued by way of demand and petition within the insolvency regime.
For more information, please contact Nikki Brastock, Chloe Waul or another member of our Restructuring & Insolvency team.
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