A statutory demand is a notice sent to a debtor which states the amount of the debt (as of the date of the demand) and the time in which the demand is to be complied with.
The creditor may proceed to file a bankruptcy application if both of the following happen:
- The debtor does not pay within 21 days after the date of service of the statutory demand.
- The debtor does not apply to the court to set aside the statutory demand within 14 days after the date of service of the statutory demand (or 21 days if it was served outside of Singapore).
Thus, the creditor can file a bankruptcy application even if the debtor refuses to accept or respond to the document. At Christopher Bridges Law Corporation, our team of lawyers in Singapore can assist in this regard.
What should I do if I receive a statutory demand?
If you receive a statutory demand, you can either comply and pay the debt or apply to the Court to set aside the statutory demand.
Complying with a statutory demand
If you wish to comply, you can contact the creditor or the creditor’s lawyers and arrange to settle the debt.
Our lawyers would be able to advise you on your legal rights, and represent you in negotiations with the creditor or the creditor’s lawyers. In these negotiations, our contract lawyer in Singapore can represent you in negotiating the terms of your repayment, such as whether you can pay in instalments.
Setting aside a statutory demand
If you dispute the debt demanded by the creditor, you can apply to the Court to set aside the statutory demand. The effect of setting aside is to make the demand invalid.
However, the court may only set aside the statutory demand for valid reasons such as:
- If you have a valid counterclaim equivalent to or exceeding the amount of the debt stated in the demand. For instance, you may also have a claim against the creditor for the same or higher amount as the debt owed.
- If you dispute the debt stated in the demand on grounds which appear to the court to be substantial. For example, a creditor might point to a contract with you to show that monies are due and owing to them. However, you may dispute the validity of the contract, or dispute the fact that they even signed the contract.
When you receive a statutory demand, you may want to dispute the debt, but you may be unsure where to begin and whether this is the best course of action. This is where our contract dispute lawyers come in. Our lawyers will review your case and advise you on whether it is appropriate to dispute the debt based on the facts and evidence. For instance, if you have a counterclaim, our contract claim lawyer in Singapore will help you present your case to show how this claim arose and establish that this counterclaim is valid.
The law on setting aside a statutory demand
A creditor cannot try to use the winding-up process to recover a disputed debt. Such an attempt will usually be dismissed with costs as it is an abuse of process. Where a creditor becomes aware that a debt is bona fide disputed, he should file an action, obtain judgment and then make a winding-up application. The Court may order an injunction, stay or dismissal of the proceedings if it is not satisfied as to the bona fides of the application.
In other words, if you wish to set aside a statutory demand, all that must be shown is that the debt set out in the statutory demand is bona fide disputed. You only need to show the Court that there are triable issues regarding the debt that ought to be heard in Court, rather than decided on a summary basis. At this stage, the Court is not deciding on the merits or strengths of your case – all that needs to be shown is that there are issues that require further evidence or investigation to be properly decided. However, a debtor cannot simply argue that there is a bona fide dispute – it must be shown that there is evidence in support of this.
The case of Jurong Shipyard Pte Ltd. v BNP Paribas [2008] SGHC 86 is helpful in illustrating these concepts. In this case, the alleged debtor was Jurong Shipyard Pte Ltd (JSPL), a Singaporean company in the marine engineering business. The creditor was BNP Paribas (BNPP), a large international bank.
BNPP filed a statutory demand against JSPL for a sum of US$50,723,070, which BNPP claimed was a debt owed by JSPL. The case arose because JSPL’s then-Chief Financial Officer, Wee Sing Guan (“Wee”), entered into various foreign exchange (forex) transactions with BNPP on behalf of JSPL. JSPL later discovered these transactions had accumulated substantial losses (around US$50 million) mainly from a single pair of transactions. JSPL claimed these transactions were unauthorised by the company and therefore not binding on them. Thus, JSPL’s position was that the debt was disputed as the transactions did not bind the company and no monies were due to BNPP.
Despite JSPL’s position that the debt was disputed, BNPP issued a statutory demand for payment. JSPL then went to court seeking an injunction to stop BNPP from using the winding-up process to collect this alleged debt.
JSPL argued that BNPP knew or ought to have known that Wee did not have the authority to enter into these specific transactions, which included complex and “exotic” instruments. JSPL called expert witnesses to give evidence that the transactions were of such an exotic, complex nature that BNPP could not reasonably have believed that they were either in the commercial interests of JSPL or that JSPL could have understood those transactions.
The main question for the court to consider was whether JSPL had raised triable issues – serious questions of fact or law that need a full trial to be decided – regarding whether the debt was genuinely disputed. JSPL did not have to prove that it will win, just that there’s a substantial and genuine dispute. Thus, the Court held that JSPL had indeed raised triable issues regarding whether BNPP knew or ought to have known that Wee lacked authority for the specific, complex transactions he entered into. The Court allowed the application made by JSPL, and BNPP was restrained from commencing winding-up proceedings subsequent to their statutory demand.
Procedure to set aside:
- Prepare and file the following documents:
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- An Originating Application (Bankruptcy)
- A supporting affidavit which must be sworn or affirmed before a Commissioner for Oaths (CFO).
If you wish to set aside the statutory demand, you must file the setting aside application within 14 days after the date on which the statutory demand was served on you (unless the statutory demand was served on you outside of Singapore, then the time limit is within 21 days).
Based on the law, the bar for setting aside a statutory demand is not high – a debtor only needs to show triable issues. However, it would be a costly and distressing mistake to allow a creditor to proceed with a bankruptcy application against you because you failed to present a good case for yourself, show the correct evidence, or clearly set out your side of the story.
Our litigation lawyer in Singapore would be able to advise you on whether it is likely that you can show triable issues of law or fact relating to the disputed debt. Our law firm in Singapore can then help to draft the documents to properly set out your case and make the necessary applications on your behalf. In particular, your affidavit is important as it places your evidence and your side of the story before the Court. Where appropriate, our lawyers will help you to present a case to dispute the debt through your affidavit by setting out the facts and supporting evidence.
- The court will schedule a hearing for your application.
You must attend the hearing on the appointed date and time. The court will usually schedule this within 2 weeks to 1 month from the date of filing of the application.
The first hearing is at least one month from the application and at the hearing, dates will be set to submit written submissions before the actual hearing for arguments on setting aside.
If you are represented by our lawyer, we will attend the hearing on your behalf and you need not attend. At the hearing, we will argue your case before the Court, answer any questions the Court may have, and rebut and/or respond to any points raised by the creditor or the creditor’s lawyers.
- At the hearing, the court will determine the merits of your application and decide whether to allow or dismiss it.
If the setting aside application is allowed, the statutory demand will become invalid, and the creditor cannot proceed to file a bankruptcy application against you. If the setting aside application is dismissed, the statutory demand will remain valid, and the creditor may proceed to file a bankruptcy application against you if you do not comply with the statutory demand.
Debt Repayment Scheme (DRS):
In the event the creditor can proceed to file a bankruptcy application against you, you may be eligible for the debt repayment scheme (DRS).
The DRS is a pre-bankruptcy scheme. It is a structured repayment plan administered by the Official Assignee (OA) from the Ministry of Law’s Insolvency Office for debts not exceeding $150,000.
The DRS is only initiated when a bankruptcy application is made against you in Court either by yourself or your creditor. The Court may then refer your case to the Official Assignee (OA) for an assessment of your eligibility and suitability for the DRS.
Pursuant to Section 316(9) of the Insolvency, Restructuring and Dissolution Act 2018 (the IRDA), if a bankruptcy order may be made on the bankruptcy application, the Court must, instead of making the order, adjourn the bankruptcy application for 6 months or such other period as the Court may direct and refer the matter to the Official Assignee to determine whether the debtor is suitable for a debt repayment scheme.
For this provision to be engaged, all of the following qualifying criteria must be satisfied:
- the debt or the aggregate of the debts in respect of which the bankruptcy application is made does not exceed $150,000;
- You are not an undischarged bankrupt, and have not been a bankrupt at any time within the period of 5 years immediately preceding the date on which the bankruptcy application is made, under the IRDA;
- A voluntary arrangement under Part 14 of the IRDA is not in effect, and was not in effect at any time within the period of 5 years immediately preceding the date on which the bankruptcy application is made;
- You are not subject to any debt repayment scheme under Part 15 of the IRDA, and have not been subject to any such debt repayment scheme at any time within the period of 5 years immediately preceding the date on which the bankruptcy application is made; and
- You are not a sole proprietor, a partner of a firm within the meaning of the Partnership Act 1890, or a partner in a limited liability partnership.
If the OA assesses you to be suitable for the DRS, a DRS administrator will devise a Debt Repayment Plan (DRP) for you. The proposed DRP will set out a plan for you to repay your debt over a fixed period of time of not more than 5 years. Once you have met your financial obligations under the DRS, you will be released from your debts and have a fresh start thereafter.
By committing to a DRP, you can avoid bankruptcy, as well as the legal restrictions and stigma that come with being declared bankrupt. Pursuant to Section 316(11) of the IRDA, if at any time during the period your bankruptcy application is adjourned, a DRS commences, the bankruptcy application is deemed to be withdrawn on the date of commencement of the debt repayment scheme.
However, should the OA assess that you are unsuitable, or should you fail to comply with the OA’s instructions, you will be deemed unsuitable for the DRS. Pursuant to Section 316(10)(a) of the IRDA, your case will then be referred to Court for the bankruptcy proceedings to proceed. Further, pursuant to Section 316(1)(b), if at the end of the period of adjournment of your bankruptcy application, a DRS has not commenced, your case will be referred back to Court for the bankruptcy proceedings to proceed as well.
Conclusion
Given the significant implications of statutory demands and potential for bankruptcy, it is strongly recommended that debtors seek legal advice immediately to protect themselves and their assets. Our lawyers in Singapore are well-versed on your legal rights and options in responding to the statutory demands, allowing you to navigate through the complex nature of statutory demand proceedings to avoid costly mistakes.
With the overwhelming and time-consuming legal processes to set aside statutory demands, our contract drafting lawyers can advise you at each step and help you present your case. Seeking our professional legal advice will thus give you comprehensive support and peace of mind, ensuring that the best solution available can be reached.
In the context of liquidation and bankruptcy laws, statutory demands remain consequential in Singapore. By engaging Christopher Bridges Law Corporation, debtors can obtain guidance and peace of mind in navigating through the complex nature of statutory demand proceedings to best protect themselves.
Christopher Bridges Law Corporation’s extensive experience in bankruptcy law allows us to provide professional legal solutions to setting aside statutory demands and achieving a practical solution. Our law firm in Singapore also assists clients in contract drafting, including services from contract drafting lawyers, resolving contract breaches, and managing contract claims. If your case also involves business contract disputes or debt collection in Singapore, our legal team is here to help.
Please feel free to reach out to us at (+65) 6323 2328 or seccbridges@cbridgeslaw.com to schedule a free consultation.
