A company served with a formal demand for payment of a debt, known as a statutory demand, has three options to avert bankruptcy action being taken.

The first thing a company can do is to pay the amount demanded or give security for the debt "to the reasonable satisfaction of the creditor".

The second is to reach a compromise with the person making the demand.

The third is to apply to have the demand set aside.

There are four grounds for the courts to set aside a statutory demand:

• if there is a genuine dispute between the company and the person serving the demand about the existence or amount of the debt involved,
• if the company has an offsetting claim,
• if, because of a defect in the demand, substantial injustice would be caused, or
• for "some other reason".

By far the most common ground for seeking to have a demand set aside is genuine dispute. The genuine dispute must relate to the existence or amount of debt.

The court’s task is simply to determine the genuine level of a claim, not its likely result. Where the claim contains misleading or ambiguous descriptions of the debt claimed, the court will intervene to set it aside. Whether a company is solvent or not is irrelevant.

Some "other reasons" the courts have set aside a statutory demand include failure to accompany a statutory demand with an affidavit as required by law, and failure by the creditor to provide proper evidence of such basic matters as, for example, that a debt is due and payable. Where the accompanying affidavit is not sworn at the same time as the statutory demand, even if it it’s sworn just a few days before, the statutory demand will be liable to be set aside for "some other reason".

Consult your solicitor for further information.