‘Mere Technicality’ Plea Fails to Convince Judge in Bankruptcy Case

Construction siteMaking a debtor bankrupt is a serious matter and the correct procedural steps must be followed to the letter. As a High Court case showed, arguments that such steps are mere technicalities and that a failure to follow them has caused no injustice almost always fall on fallow ground.

A businessman personally guaranteed various corporate liabilities arising under an agreement with a construction company. The guarantee required the company to serve him with formal notice in writing if it intended to have recourse against him. That step was, however, dispensed with in error.

After the company assigned its rights under the guarantee to another company, the latter served the businessman with a statutory demand – the first step in the process of having him declared bankrupt – for a sum in excess of £7 million. He applied to have the demand set aside, citing the failure to serve him with the notice required under the terms of the guarantee.

The assignee argued that that requirement was no more than a technicality. The businessman had been aware for some time that he was personally liable for the sum claimed and had suffered no prejudice or unfairness. Service of the statutory demand would in any event have dispelled any doubts from his mind and it was submitted that setting it aside would simply be a waste of time.

In rejecting those arguments, however, the Court noted that a creditor may only petition for a debtor’s bankruptcy if the relevant debt is payable immediately. The failure to serve the required notice meant that the debt in question did not meet that criterion. Observing that a notice under the guarantee had still not been served on the businessman, the Court set aside the statutory demand.