Dunbar Assets PLC v Lawrence John Butler  EWHC 2546 (Ch)
In this recent High Court judgment, the court has provided guidance on the test to be applied when considering an application to set aside a statutory demand.
The Appellant in this case, Dunbar, made loans in March 2010 and September 2011 to two separate companies (together "the Companies") under which facilities of c.£19m and c.£10m were respectively made available. The Companies were owned as to 95% of their share capital by trustees, who held the shares on trust for the benefit of the respondent, Mr Butler, and his family. Prior to execution of the two loans, Mr Butler had provided personal guarantees, limited in amount, to Dunbar as security for the loans which guaranteed payment on demand of the Companies liabilities to Dunbar.
The loans taken out by the Companies were for the purpose of funding property developments at various sites on the southern coast of England. When the Companies defaulted on the loans in 2013, Dunbar made written demands upon the Companies for over £30m in total. Dunbar subsequently served statutory demands on Mr Butler, who proceeded to apply to set them aside. He did so on the grounds that:
- The guarantees were not enforceable because he had reached a compromise with Dunbar in 2009 whereby he would continue to manage the development properties on the basis that the personal guarantees would not be enforced;
- Alternatively, if the guarantees were enforceable, that Dunbar was estopped from enforcing their terms on the basis of assurances given to him by Dunbar representatives from 2009 onwards that any claim against him would be "eliminated" as long as he continued to manage the properties;
- Further, that Dunbar was in effect a shadow director or de facto director of the Companies as a result of its role in managing and controlling the developments, and that it would be unconscionable in these circumstances for Dunbar to seek to enforce the guarantees;
- Finally, in the alternative, that Dunbar's actions amounted to a material variation to the loan facilities such that the original facilities were surrendered, Dunbar entitled to take control of the Companies and Mr Butler consequently discharged from personal liability.
At first instance, the Deputy Registrar dismissed ground 4 and also held that there was no genuinely triable issue (the standard required for a statutory demand to be set aside) arising before 2012. However, he concluded that a meeting which took place in September 2012 between Mr Butler, an associate and various representatives of Dunbar did provide a triable issue since the parties disputed what had occurred at the meeting, sufficient to merit the testing of evidence at trial.
This decision has now been reversed by the High Court on appeal. Three grounds of appeal were advanced by Dunbar:
- That the Deputy Registrar had applied the wrong test in ascertaining whether there was a triable issue;
- That even accepting Mr Butler's evidential case, nothing alleged by Mr Butler to have occurred was capable of establishing an estoppel; and
- That the Deputy Registrar failed to attach sufficient weight to contemporaneous documents which post-dated the disputed September 2012 meeting.
The judge found in favour of Dunbar on every ground. While the Deputy Registrar had correctly identified that a genuine triable issue needed to be raised in order to set aside a statutory demand, he erred when assessing whether the factual issues raised by Mr Butler provided sufficient grounds on which to dispute liability. The judge further held that nothing that Mr Butler alleged had taken place could establish an estoppel. Mr Butler had claimed that Dunbar had reassured him at the September 2012 meeting that whilst he continued to work on the developments, enforcement action would not be taken against him. However, even on his own case, by the time Dunbar sought to enforce the guarantees, Mr Butler had ceased working on the developments. Any estoppel that might have existed during the period when Mr Dunbar was working for Dunbar disappeared once this work came to an end.
In deciding this second ground, the judge's decision was enough on its own to dispose of the appeal in Dunbar's favour. Nonetheless, the judge went on to hold that the Deputy Registrar was wrong to conclude that the documents provided sufficient material to raise a triable issue. In reaching his decision, the High Court judge helpfully confirmed the test for setting aside a statutory demand, reiterating the established principle that the standard of genuine triable issue as found in the Insolvency Rules is interchangeable with concept of "real prospect of success" as found in the Civil Procedure Rules.