Section 155 of the BVI Insolvency Act, Revised 2020 (the "Act") defines a statutory demand as a demand on a person for payment of a debt owed to a creditor by that person.
Put simply, a statutory demand is a written request for payment and would be of interest to creditors of defaulting BVI companies.
What must a statutory demand comprise?
A statutory demand must comply with requirements set out in the Act as well as the BVI Insolvency Rules, Revised 2020 (the "Rules").
It must:
- be for a debt of US$2,000 or more, which is due and payable at the time the demand is made;
- be in writing and specify the nature and amount of the debt;
- be dated, signed by (or on behalf of) the creditor;
- require the debtor to pay the debt or secure or compound it to the reasonable satisfaction of the creditor within 21 days of the date of service;
- state that, if the debtor does not comply with it, the creditor may apply to the BVI High Court (the "Court") for a liquidator to be appointed; and
- state that the debtor has the right to apply to have it set aside.
In instances where the creditor making a statutory demand holds security for the debt, the statutory demand must:
- specify the full amount of the debt;
- specify the nature of the security and the value which the creditor places on the security interest on the date of the statutory demand; and
- claim the full amount of the debt less the amount specified as the value of the security interest (this amount claimed must be equal to or greater than the prescribed minimum amount of US$2,000).
How can a statutory demand be a useful tool for you?
Resulting from the issue of a statutory demand, the debtor may pay the debt within the 21 days prescribed by the Act. This would be the best result for a creditor.
Alternatively, the debtor/defaulting company may apply to set aside the statutory demand under section 157 of the Act. It is important to note that the 21-day period to comply with a statutory demand will cease to run from the date on which an application to set it aside is filed.
However, if a statutory demand is not set aside, section 8(1)(a) of the Act will apply and the debtor/defaulting company will be deemed insolvent.
This would entitle the creditor to apply to the Court to have liquidators appointed over the debtor/defaulting company. The liquidators can then gather in the assets of the company, potentially paying some or all of the debt owed.
Though issuing a statutory demand can be a useful tool, it is important to be wary of using it as a means of simply putting pressure on a debtor to pay a debt, as (depending on the circumstances) a court may regard that as an abuse.
What does the application to set aside a statutory demand entail?
Section 156 of the Act provides a right for a person who has been served with a statutory demand to apply to the Court to have it set aside.
The application to set aside must:
- be filed within 14 days of the date of service of the statutory demand (the Court cannot extend this period);
- be supported by an affidavit specifying the date when the statutory demand was served and the grounds on which the debtor claims that the demand should be set aside; and
- exhibit the statutory demand to the affidavit.
The debtor/defaulting company applying to set aside a statutory demand must give the creditor seven days' notice of the hearing of the application.
When will the Court set aside a statutory demand?
The Court will set aside a statutory demand if it is satisfied that:
- there is a substantial dispute as to whether:
- the debt is owing or due; or
- a part of the debt (which would reduce the undisputed debt to less than the prescribed minimum of US$2,000) is owing or due;
- the debtor has a reasonable prospect of establishing set-off, counterclaim or cross claim in an amount equal to or greater than the amount specified in the demand less the prescribed minimum of US$2,000; or
- the creditor holds security for the debt and the unsecured portion of the debt claimed is less than the prescribed minimum of US$2,000.
The Court may also set aside a statutory demand if it is satisfied that there would be substantial injustice because there is a defect in it or for some other reason.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.
