Richard Henry Addison v London European Securities Limited

A statutory demand may be set aside where the debt is disputed on grounds that appear substantial. An argument must be sustainable; mere arguability is insufficient.

The residual power to set aside a demand applies where its ordinary consequences would be unjust. In a guarantor case, the court may consider whether the principal debtor would realistically have a substantial cross-claim capable of resisting insolvency proceedings. A merely hypothetical claim is insufficient.

A bankrupt may continue an appeal concerning whether the statutory demand which led to the bankruptcy should have been set aside. The relevant question is whether the appeal is personal to the bankrupt, not whether it concerns solely body, mind or character.

Mr Addison guaranteed a loan made by London European Securities Limited to Pendle. After Pendle failed to repay, LES exercised an option relating to Pendle’s property and served Mr Addison with a statutory demand.

The County Court dismissed Mr Addison’s application to set aside the demand under rules 10.5(5)(b) and (d) of the Insolvency Rules 2016. It authorised LES to present a bankruptcy petition. Mr Addison was later adjudged bankrupt, and permission to appeal was granted.

The appeal concerned whether the debt was disputed on substantial grounds, whether it would be unjust to permit LES to rely on the demand, and whether Mr Addison retained standing after bankruptcy.

1. The appeal was dismissed. Mr Addison had standing despite his subsequent bankruptcy, but neither ground of appeal succeeded.
2. Under rule 10.5(5)(b) of the Insolvency Rules 2016, the dispute must have something to suggest that the asserted defence is sustainable. It is not enough that the dispute is merely arguable. The option created a binding contract for the sale of land, but completion did not occur. Clause 11.2 required payment on completion and did not automatically extinguish the loan debt on the contractual completion date. The loan debt and the guarantee debt therefore remained outstanding.
3. Rule 10.5(5)(d) gives a residual discretion where it would be unjust for the statutory demand to have its ordinary consequences. Re A Debtor (No.1 of 1987) and Remblance v Octagon Assets Limited establish that, where a guarantor is pursued, the court may consider whether insolvency proceedings against the principal debtor would have been resisted by a substantial cross-claim. The guarantor should not be placed in a worse position than the principal debtor.
4. The District Judge was entitled to find that Pendle’s proposed claims for damages or specific performance were hypothetical. There was no evidence that Pendle was willing or able to pursue them, the property was being marketed by the receiver, and a specific-performance claim faced substantial practical difficulties. There was therefore no error of legal principle and the decision was not plainly wrong.
5. The proper standing inquiry after bankruptcy is whether the litigation is personal to the bankrupt. The body, mind and character category identified in Heath v Tang is important but not exhaustive. A challenge to a statutory demand is closely connected with the bankrupt’s status and may lead to annulment of the bankruptcy order under section 282(1)(a) of the Insolvency Act 1986. It is not an asset capable of being pursued for the estate’s benefit.

• County Court at Kingston-upon-Thames: District Judge Smart dismissed the application to set aside the statutory demand and authorised presentation of a bankruptcy petition.
• High Court: Permission to appeal was granted by Zacaroli J. The appeal was dismissed. The court held that Mr Addison had standing, but rejected both grounds of appeal.