Statutory Demands: Third Party Charges are Security “In Respect of a Debt"

When serving a statutory demand on an individual, a secured creditor is required to specify the nature and value of any security held, including third party charges “rooted” in the same debt. Failure to do so will result in the court setting aside the demand.

Mr and Mrs Bell (“the Bells”) were directors and shareholders of Dev Limited (“Company”).  The Company had a loan facility with the Clydesdale Bank (“Bank”).  The Bank’s current and future lending to the Company was secured by: a charge over the Company’s property; a personal guarantee (“PG”) given by the Bells, limited to £170,000; and third party mortgages executed by the Bells over properties they owned. 

The facility matured in January 2014.  The Creditor took an assignment of the Bank’s rights in November 2014.  The Creditor appointed receivers over the Company’s property and the properties owned by the Bells.  Realisations reduced the sum owed to c.£185,000.  The Creditor served statutory demands on the Bells in February 2017.  They applied to set-aside the demands on the basis that the Creditor held security over their properties.

Zacaroli J confirmed the first instance decision that “security in respect of the debt” in Rules 6.1(5) and 6.5(4)(c) IR1986 should be given the same meaning as the phrase “security for the debt” in s.383 IA1986.  Distinguishing between two debts (one owed by the Company and one owed by the Bells), both forms of the security were rooted in the same debt.  Zacaroli J found that the Creditor was not entitled to choose in which order to enforce its securities; the guarantee was additional to other securities provided to the Creditor.  It was mandatory to include details of the security in the demands, pursuant to Rule 6.5(4)(c).

When serving a statutory demand as a precursor to a bankruptcy petition, creditors should disclose all security they hold for the debt, including security from a third party.  The demand (and petition) must contain a statement that the creditor is willing to give up the security.  Alternatively, the security should be valued and the demand (and petition) restricted to the value of the unsecured debt.

Promontoria (Chestnut) Limited v Bell and Bell [2019] EWHC1581 (Ch)

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