Is a statutory demand a demand triggering liability under a guarantee?

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Section 268 Insolvency Act sets out the definition of “inability to pay” which is a condition to be met to start bankruptcy proceedings.

Where the basis for serving a statutory demand is that a debt is payable immediately, then a debtor is unable to pay a debt if, but only if, the debt is payable immediately and either a statutory demand has been served or execution or other process has been returned unsatisfied.

The debt claimed in this case arose under a guarantee. The guarantee document provided that the guarantor was only liable to make payment when he had been served with a written demand for payment in accordance with the terms of the guarantee. No such demand had been served so the guarantor applied to set aside the statutory demand which had been served on him claiming the debt was payable immediately.

The application to set aside the statutory demand was successful. The statutory demand could not itself stand as a demand under the guarantee and the failings of the creditor were of substance not just form. The essential prerequisites of Sections 267 and 268 Insolvency Act had not been met.

Ronald Martin v McLaren Construction Ltd [2019] EWHC 2059 (Ch)

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