A statutory demand is an important step in the bankruptcy process, as it allows the creditor to initiate a bankruptcy application against the debtor. It is thus vital that any statutory demand issued must conform to the legislative requirements. In the recent case of Ramesh Mohandas Nagrani v United Overseas Bank Ltd  SGHC 266, the Singapore High Court had to decide whether to set aside a statutory demand based on alleged irregularities in its contents, and touched on what makes a statutory demand invalid.
The statutory demand in this case was successfully upheld by Rebecca Chew and Ang Siok Hoon from Rajah & Tann Singapore LLP.
A statutory demand is essentially a written notice from a creditor to a debtor, informing the debtor that bankruptcy proceedings may be initiated if payment is not made. The form of a valid statutory demand is provided for in the Bankruptcy Rules, which also lists out a series of requirements as to the content and information.
The content of a statutory demand should include:
- The amount of debt as of the date of the demand;
- Any interest, penalties or charges;
- The consideration for the debt or the way the debt arose; and
- The nature of value of any property or security of the debtor held by the creditor.
A statutory demand should also contain the following information:
- The purpose of the demand and notice that bankruptcy proceedings may be commenced if compliance is not forthcoming;
- The time frame within which compliance should occur;
- The methods of compliance;
- The debtor’s right to apply to court to set aside the statutory demand; and
- The contact information of the individuals whom the debtor should communicate with.
The present case involved a statutory demand issued by the defendant Bank to the plaintiff Debtor. The debt arose from guarantees signed by the Debtor in respect of banking facilities extended by the Bank to three companies, of which the Debtor was the sole shareholder and the sole director.
The Debtor applied to set aside the statutory demand, alleging that it did not comply with the requirements of the Bankruptcy Rules. However, the High Court declined to do so.
One of the grounds on which the Debtor relied was that the statutory demand stated the amount of debt as of 20 February 2014, when the statutory demand was dated 25 February 2014. The statutory demand also referred to a bankruptcy petition rather than a bankruptcy application as provided in the standard form.
The court rejected the Debtor’s submission that, absent strict compliance with the requirements of the Bankruptcy Rules, a statutory demand would be rendered invalid. Rather, the court adopted a pragmatic approach, and looked to whether any substantial injustice arose from the irregularity in the statutory demand. Here, neither irregularity caused any injustice to the Debtor, and thus did not serve to invalidate the statutory demand. It was clear to the Debtor what he had to pay to discharge the statutory demand.
The Debtor had also purchased a car under a hire-purchase agreement with the Bank. The defendant Bank did not make any demand pursuant to the hire-purchase agreement. The Debtor submitted that the car constituted property of his held by the Bank and, as such, the value of the car should have been included in the statutory demand. The court agreed that the Debtor held an option to purchase the car under the hire-purchase agreement and such option fell within the definition of “property” in the Bankruptcy Act. However, the court held that such property need not be included in the statutory demand for the following reasons:
- The option to purchase was held by the Debtor and not the creditor;
- Only property which the creditor is entitled to apply towards payment of the debt claimed in a statutory demand need to be included.
Finally, the Debtor submitted that there were substantial grounds on which the debt was disputed. However, the court did not view any of the submitted grounds as substantial. Therefore, the statutory demand was upheld.
Although the decision is pending appeal, there is some guidance to be found in the approach taken by the court. Debtors are often inclined to dispute the validity of a statutory demand in order to stave off bankruptcy proceedings. However, the court has demonstrated that simple irregularities in the form of a statutory demand are insufficient to warrant invalidity. Further, any dispute over the underlying debt must have a sufficiently strong basis in order to set aside the statutory demand.
Banks and creditors should nonetheless be aware of the requirements of a statutory demand as listed in the Bankruptcy Rules. Creditors should always seek to conform to these requirements in order to avoid any dispute over the statutory demand, and to avoid having the statutory demand potentially set aside.