Disputed debts and bankruptcy

In Zavarei v Vaziri, HH Judge Davis-White KC allowed an appeal against the refusal to set aside a statutory demand and revisited the principles governing disputed debts in bankruptcy proceedings.

The dispute concerned an alleged balance of £200,000 due under a £1 million loan agreement. The debtor contended that subsequent agreements reached in 2023 had effectively discharged the liability through a combination of credits, set-offs and other commercial arrangements. The creditors disputed that account and argued that the debtor's evolving witness evidence undermined the credibility of the alleged discharge agreement.

The appeal court held that the first instance judge had gone too far in treating those inconsistencies as fatal to the debtor's case. While aspects of the evidence were open to challenge, there remained a genuine dispute over what had been agreed between the parties and whether the remaining debt had subsequently been discharged. Those issues could only be resolved through disclosure, cross-examination and findings of fact at trial.

Reaffirming that the test under rule 10.5(5)(b) of the Insolvency Rules 2016 mirrors the summary judgment standard, the court emphasised that the question is whether the defence has a real, rather than fanciful, prospect of success. The insolvency court's role is not to determine contested factual disputes on a paper application.  

The judgment contains useful observations on when evidence may be characterised as "incredible". The court confirmed that apparent inconsistencies, changes in a witness's account and competing factual narratives will not ordinarily justify rejecting a defence at the statutory demand stage where credibility can only properly be assessed after cross-examination. The appeal was therefore allowed and the statutory demand set aside.  

Points for practitioners

• The insolvency court remains reluctant to resolve credibility disputes that properly require cross-examination.
• The "substantial dispute" test remains aligned with the summary judgment standard.  
• A defence does not become "incredible" simply because a witness's evidence has evolved or appears inconsistent.
• No oral modification clauses do not necessarily provide an easy route to disposal where estoppel or other related arguments remain realistically arguable.
• Creditors should be cautious about pursuing bankruptcy proceedings where the dispute turns on contested factual issues rather than documentary certainty.

Zavarei v Vaziri [2026] EWHC 1293 (Ch)

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