Delaram Zavarei v Kianouche Vaziri & Anor

On an application to set aside a bankruptcy statutory demand, a debt is disputed on substantial grounds where the debtor’s defence has a real, rather than fanciful, prospect of success. The court must avoid conducting a mini-trial or resolving genuine conflicts of witness evidence. Evidence that emerged later, or appears improbable, is not necessarily incredible. The court may reject evidence at this stage only where there is no real prospect of it being accepted, such as where it is inherently self-contradictory or unequivocally contradicted by unchallengeable evidence. In a finely balanced case, the court should lean towards the debtor because bankruptcy has serious consequences. A defect in a statutory demand does not automatically require it to be set aside; the question is whether injustice requires that result.

The appellant appealed against an order of District Judge Owen dismissing her application to set aside statutory demands served by the respondents under section 268 of the Insolvency Act 1986. By the time of the hearing below, the respondents pursued £200,000 said to be due under a loan agreement dated 1 April 2018, together with interest. The appellant maintained that subsequent agreements in 2023 had capped and discharged the debt through payments, benefits and business arrangements involving the respondents.

The District Judge found that the appellant’s later evidence was not credible and permitted a bankruptcy petition to be presented for £200,000. The appeal concerned whether that conclusion involved an erroneous approach to the substantial-dispute test, and whether further evidence should be admitted.

1. Appeal allowed. The order below was set aside and the statutory demand was set aside. The respondents were ordered to pay the costs below and on appeal. Their application to adduce further evidence was dismissed.
2. Under r 10.5(5)(b) of the Insolvency (England and Wales) Rules 2016, the question is whether the debtor has no real prospect of succeeding on the defence to the debt claimed. The prospect must be real and carry some degree of conviction, but probabilities are ordinarily matters for trial. The appellate court’s restraint in reviewing evaluative decisions does not impose the same limitation in an appeal concerning r 10.5(5)(b).
3. The court must avoid a mini-trial. It may determine short points of law or construction, but genuine factual disputes and conflicts in witness evidence generally require disclosure and cross-examination at trial. Evidence may be treated as incredible only where there is no real prospect of it being accepted, for example because it is inherently self-contradictory or unequivocally inconsistent with unchallengeable evidence.
4. The District Judge wrongly inferred that the appellant had simply forgotten the defence later advanced. The explanation that the first evidence was prepared under severe time pressure and without access to relevant records could not properly be assessed without cross-examination. The evidence concerning the 2023 meetings was supported by surrounding circumstances, including the respondents’ continued business relationship with the appellant and contemporaneous evidence of relevant benefits and payments.
5. The no-oral-modification clause did not conclusively prevent reliance on alleged oral agreements. It could be relied upon at trial as a legal argument or as evidence bearing on whether the agreements were made, but it did not establish at the interlocutory stage that the defence had no real prospect of success. There was a clearly triable issue as to whether the remaining £200,000 had been discharged by crediting payments or benefits provided to the first respondent.
6. The additional bank evidence would not probably have materially influenced the result and was not obtainable with reasonable diligence. It was therefore excluded under the principles in [1954] 1 WLR 1489.

• Chancery Appeals: The appeal from the order of District Judge Owen dated 7 February 2025 was allowed. The statutory demand was set aside.
• County Court at Brighton: District Judge Owen dismissed the application to set aside the statutory demand, authorised a bankruptcy petition for £200,000 and ordered costs.
• Permission to appeal: Granted by Rajah J on 22 September 2025.