Case Study: Challenging a Statutory Demand (Emmott v Michael Wilson)

Emmott v Michael Wilson & Partners Ltd [2022] is a case in which the debtor was successful in challenging the validity of a statutory demand.

Statutory demands are a legal tool used by creditors to demand payment of a debt. The process involves serving the debtor with the demand, which if not satisfied, can progress to an individual bankruptcy petition or a company winding-up petition. It is possible for debtors to challenge the validity of a statutory demand and have it set aside.

Need a second opinion on statutory demands? Our specialist solicitors & barristers can help by assessing your case. We have highly experienced dual-qualified lawyers, so if our view is your case has limited merit or high risk we can advise you of the best strategy in our first meeting. See this Client Case Study on our main website for an example of how we can assist setting aside Statutory Demands in a professional way which results in the other side paying legal costs.

History Between the Court Litigation Parties

The case involved a dispute between a solicitor, Mr. Emmott, and his former employer, Michael Wilson & Partners Ltd. Following his departure from the firm, Mr. Emmott claimed that he was owed outstanding fees and expenses. In response, Michael Wilson & Partners Ltd issued a statutory demand for the payment of the alleged debt.

Mr. Emmott applied to have the statutory demand set aside on the grounds that the debt was not genuinely owed. He argued that the amount claimed by the firm was overstated, and that he had a valid counterclaim against the firm for unpaid fees and expenses.

The court ultimately sided with Mr. Emmott and set aside the statutory demand.

Why the Court Set Aside the Statutory Demand? 

In reaching its decision, the court considered the following key factors:

  1. The Debt Must Be Genuine

The court stressed that a statutory demand can only be issued for a genuine debt that is not in dispute. If the debtor has a bona fide dispute over the amount of the debt, or has a valid counterclaim against the creditor, then the statutory demand can be set aside.

In Mr. Emmott’s case, the court found that he had a valid counterclaim against Michael Wilson & Partners Ltd for unpaid fees and expenses. As such, the debt claimed by the firm was not genuine and the statutory demand was set aside.

  • The Debt Must Be Due and Payable

Another requirement for a valid statutory demand is that the debt must be due and payable. This means that the debtor must have had a reasonable opportunity to pay the debt before the demand was issued.

In Mr. Emmott’s case, the court found that the debt claimed by Michael Wilson & Partners Ltd was not due and payable. This was because the firm had failed to provide Mr. Emmott with a detailed breakdown of the fees and expenses claimed, and had not given him a reasonable opportunity to dispute the amount owed.

  • The Statutory Demand Must Be Issued in Good Faith

The court also noted that a statutory demand must be issued in good faith. This means that the creditor must genuinely believe that the debt is owed and that the demand is being issued for a proper purpose.

In Mr. Emmott’s case, the court found that Michael Wilson & Partners Ltd had not issued the statutory demand in good faith. This was because the firm had failed to provide Mr. Emmott with a detailed breakdown of the debt claimed, and had not taken into account his valid counterclaim for unpaid fees and expenses.

Statutory Demand Consequences

The decision in Emmott v Michael Wilson & Partners Ltd [2022] provides useful guidance on the circumstances in which a debtor may seek to set aside a statutory demand. It highlights the importance of ensuring that there is a genuine dispute as to the debt, and that there is a substantial likelihood that the dispute will be resolved in the debtor’s favour. It also emphasises the need for creditors to act fairly and reasonably in issuing statutory demands, and to provide sufficient information about the debt and any attempts to negotiate a settlement.

The case also serves as a warning to creditors to ensure that they have a strong case before issuing a statutory demand. If a debtor successfully challenges a statutory demand, it can have serious consequences for the creditor, including being liable for the debtor’s costs in challenging the demand, and potentially damaging their reputation.

Overall, the case serves as a reminder that statutory demands should not be used as a blunt tool to force payment of debts, and that creditors must take appropriate steps to resolve disputes before taking such action. Debtors who are faced with a statutory demand should seek legal advice as soon as possible, in order to assess their options and to determine whether they have grounds for setting aside the demand.

Our Statutory Demand Experts can help you establish this.

Applying For A Statutory Demand To Be Set Aside

An application to have a served statutory demand against a company set aside does not have any formal procedure. However, under rule 10.4 of the IR 2016, a person who has received a statutory demand may ask a court to set it aside.

A company has only two options if it wants to contest a statutory demand:

  1. By applying for an injunction to stop presentation or a winding-up petition based on the demand in accordance with rule 7.24 of the IR 2016.
  • If the creditor submits a winding-up petition based on the demand, by objecting to the creditor’s request for a winding-up order against the company.

A company may also ask the creditor for permission to revoke the statutory demand. Although there is no official process for withdrawing a demand, in practice the creditor’s written confirmation of withdrawal or an agreement not to file a petition for winding up may be acceptable.

Our Statutory Demand Experts are able to give specialist legal information and advice relating to statutory demands. To contact one of our Statutory Demand Solicitors or Statutory Demand Barristers please click here or call 02071830529.

Download the Judgement here

How Can We Help you Oppose a Winding Up Petition?

Our specialist winding-up petition lawyers are experts in defending winding-up petitions. We can advise you as to the specific merits and demerits of your case and can assist you in opposing winding up petitions and negotiating with creditors. If your company has been issued a winding-up petition or statutory demand, you may be able to challenge that petition on the following grounds:

That the debt alleged in the statutory demand or petition to be owing is genuinely disputed on substantial grounds by your company; Your company has a genuine right of set-off against the creditor that exceeds the amount claimed in the statutory demand; or In certain other limited circumstances (for example such as jurisdiction, technical or procedural error or delay).

To oppose a winding-up petition, you will initially need to file a witness statement in opposition with the Court within five business days before the date when the petition will be heard by the Court (rule 7.16 of the Insolvency (England and Wales) Rules 2016). A copy of that witness statement will need to be provided to the petitioning creditor at least five business days before the hearing.

Your company is entitled to appear at the petition hearing so as to oppose the making of a winding-up order. It is a routine matter for companies to instruct solicitors and/or barristers to appear on their behalf at the hearing.

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Need a second opinion on your insolvency litigation? Our specialist solicitors & barristers can help by assessing your case prospects and whether a winding-up petition is the right tool. We have dual-qualified lawyers, so if our view is your case has limited merit or high risk we warn you in our first meeting.

Some firms offer free meetings with unqualified or junior lawyers but only after you’ve spent significant funds do you then get advice from a senior partner and/or barrister possibly suggesting that the case shouldn’t be pursued. We believe it is better to give accurate advice from experienced counsel from the outset.

We do things differently from all other law firms in England & Wales. We offer you partner and counsel-led advice in our first meeting, for a heavily discounted fixed fee. That way our best solicitors and barristers can review your litigation case and give you the correct advice at the outset, when it matters the most.

Legal advice is just one aspect of getting a solution. The most important thing is what you do with the legal knowledge about your case, how you present it to the other side and how you negotiate your way to the optimal legal settlement. Our lawyers are masters of strategically securing optimal financial settlement, often via winding-up petitions where carefully considered and advised as appropriate.

Want your case assessed or a second legal opinion? Call ☎ 02071830529 or message our London litigators by clicking the Check My Case button below:

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