Insolvency Act 1986, section 268

Definition of “inability to pay”, etc.; the statutory demand

Part IX Bankruptcy

(1)For the purposes of section 267(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either—

(a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as “the statutory 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 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules, or

(b)execution or other process issued in respect of the debt on a judgment or order of any court in favour of the petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied in whole or in part.

(2)For the purposes of section 267(2)(c) the debtor appears to have no reasonable prospect of being able to pay a debt if, but only if, the debt is not immediately payable and—

(a) the petitioning creditor to whom it is owed has served on the debtor a demand (also known as “the statutory demand”) in the prescribed form requiring him to establish to the satisfaction of the creditor that there is a reasonable prospect that the debtor will be able to pay the debt when it falls due,

(b)at least 3 weeks have elapsed since the demand was served, and

(c)the demand has been neither complied with nor set aside in accordance with the rules.

Definitions used in section 268 1

the debtor

(2) In Schedule 6 “the debtor” means the company or the individual concerned.

Defined in s.386(2) · see it in the full Act

Cases considering section 268 53

Islandsbanki Hf & Ors v Stanford

[2020] EWCA Civ 480 · 2 April 2020Interprets

Interprets section 268(1) as requiring an immediately payable debt and satisfaction of one of the statutory alternatives; only the execution alternative in section 268(1)(b) was relevant. (see para [18]) Cited only. Interprets execution or other process returned unsatisfied as excluding enforcement prohibited by the Lugano Convention and section 4A of the 1982 Act. Steps taken in defective execution could not qualify as other process. (see paras [58]-[63])

Coulter v Chief Constable of Dorset Police

[2004] EWCA Civ 1259 · 8 October 2004

The court applied the statutory mechanism by which non-compliance with a valid statutory demand establishes apparent inability to pay. (see paras [20]-[23]) The court held that the debtor had to receive the statutory three-week period to comply before a petition could be presented. The assignment before the hearing meant that the current chief constable could then rely on the demand. (see paras [20]; [23]; [27])

Popely v Popely

[2004] EWCA Civ 463 · 30 April 2004Interprets

The provision establishes apparent inability to pay where an immediately payable debt remains unsatisfied for three weeks after service of a statutory demand that has not been set aside. It underpins the statutory demand's gateway function in bankruptcy. (see paras [37]; [67]–[69]) An execution returned wholly or partly unsatisfied may prove apparent inability to pay, but it does not entitle the creditor as of right to a bankruptcy order. This supports the distinction between execution and bankruptcy. (see paras [37]; [117])

33 more judgments, and what each says about section 268, are in the case-law panel in the full Act.

Amendments and notes

2 notes from legislation.gov.uk

Modifications

  1. C955S. 268 applied (with modifications) (1.12.1994) by S.I. 1994/2421, art. 8(3)(9), Sch. 4 Pt. II para. 7(b)
  2. C956S. 268 excluded in part (24.3.2022 to be regarded as having come into force on 10.11.2021) by Commercial Rent (Coronavirus) Act 2022 (c. 12), s. 31(4), Sch. 3 para. 2 (with s. 30)