In an earlier edition of Fully Secured (June 27, 2012 – Volume 3, Number 2), we reported on the Ontario Court of Justice decision in Snoek 7 where security granted by a borrower (“HSLP”) to a group of individual creditors (“B”) was held to constitute an improper preference and declared invalid following a challenge by the trustee in bankruptcy. B had been one victim of a Ponzi scheme involving numerous unsecured creditors of HSLP.
In Rhinegold Publishing Ltd v Apex Business Development Ltd, Rhinegold and another company owed debts to the defendant in the sums of approximately £22,000 and £31,000 respectively. The defendant presented a winding-up petition against both companies which resulted in settlement being reached. The settlement provided that the companies would pay off the debts owed in full by monthly payments and that no proceedings would be issued in relation to the debts referred to in the original statutory demand if payment was made.
The case of White v Davenham Trust Ltd, has reaffirmed that a creditor can choose its own method of enforcing a debt which has been guaranteed even where it might hold security for that debt.
The court has a limited discretion not to make a bankruptcy order where the debt is the subject of a statutory demand which has not been paid and is outstanding at the time of the bankruptcy petition hearing.
The EAT's judgment
A guarantor can be made bankrupt where the terms of the guarantee create a debt obligation.
The court has held that a statutory demand is valid despite the high default interest rate on an underlying loan.
Knowing how much money you owe and are owed is critical when considering disputes with other parties. You need to consider whether a right of set-off exists between you and the other party.
A party cannot appeal a decision made in bankruptcy proceedings by reason only of a personal interest in the outcome. An economic interest is a pre-requisite.
This was confirmed by the court in Sands and another v Monem and another, in which the bankrupt had transferred the interest in his home to his wife before being made bankrupt. The transfer was made allegedly in order to settle a debt, although this was not reflected in the documentation. That transfer was successfully set aside as a preference by the bankrupt's trustee.
Why has the Financial Support Direction (FSD) been issued?