CAN A BANKRUPTCY APPLICATION MADE BEFORE THE EXPIRY OF 21 DAYS AFTER SERVICE OF A STATUTORY DEMAND BE REGULARISED?
In DBS Bank Ltd v Ong Tze Yaw Bryan [2023] SGHCR 2, AR Huang Jia Hui dismissed a bankruptcy application that was filed in reliance on a statutory demand, where the application was filed before 21 days had elapsed since the service of the statutory demand under the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”).
Facts. The claimant, DBS Bank Ltd (“the Claimant”) served a statutory demand (“the SD”) on the defendant, Mr Ong Tze Yaw Bryan (“the Defendant”) personally on 11 August 2022 at 7.10pm for a debt of $1,405,238.88 (“the Debt”) (at [2] – [3]).
The Claimant then filed the present bankruptcy application (“the Application”) on 2 September 2022 based on the Defendant’s inability to pay the Debt (at [3]).
At first blush, this seems to be a run-of-the-mill bankruptcy application. The creditor serves a statutory demand, and when the debtor fails to satisfy or compromise the statutory demand to the creditor’s satisfaction within 21 days, the creditor then files a bankruptcy application.
However, there is a twist.
Service Issue. As the SD was served after 4pm on 11 August 2022, it was deemed to have been served on the next working day, 12 August 2022. This is pursuant to r 37(1) of the Insolvency, Restructuring and Dissolution (Personal Insolvency) Rules 2020 (the “Personal Insolvency Rules”) (at [5]; [11] – [12]).
So, the SD was deemed to be served on 12 August 2022, and not 11 August 2022.
This was important because it meant that when the Application was filed on 2 September 2022, 21 days had not elapsed yet, and the presumption under s 312(a) of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”) had not arisen (at [12]).
The relevant portions of ss 311 and 312 are excerpted below (at [9]).
“Grounds of bankruptcy application
311.—(1) Subject to section 314, no bankruptcy application may be made to the Court in respect of any debt or debts unless at the time the application is made —
(a) the amount of the debt, or the aggregate amount of the debts, is not less than $15,000;
(b) the debt or each of the debts is for a liquidated sum payable to the applicant creditor immediately;
(c) the debtor is unable to pay the debt or each of the debts;
…
Presumption of inability to pay debts
312. For the purposes of a creditor’s bankruptcy application, a debtor is, until the debtor proves to the contrary, presumed to be unable to pay any debt within the meaning of section 311(1)(c) if the debt is immediately payable and any one of the following applies:
(a) the applicant creditor to whom the debt is owed has served on the debtor in the prescribed manner, a statutory demand, and —
(i) at least 21 days have elapsed since the statutory demand was served; and
(ii) the debtor has neither complied with it nor applied to the Court to set it aside;
…”
In other words, the Application was one day early.
If the Application was made on 3 September 2022, the Claimant could rely on the s 312(a) presumption.
The result of this is that as the Application was “clearly premised on the s 312(a) presumption” (at [10]) which “had not arisen when the Application was filed, the Claimant could not rely on it to show that s 311(1)(c) was satisfied.” (at [13])
Without presumption, a bare assertion. Without relying on the s 312(a) presumption, the Claimant was left with “a general assertion in the supporting affidavit that the Defendant was unable to pay the Debt [and the Claimant] argued that it was for the Defendant to rebut this assertion if he disagreed.” (at [16])
AR Huang found that without the s 312(a) presumption, “the averment would become a bare assertion [which] was not permitted by r 75(a) [of the Personal Insolvency Rules]” (at [17]).
In addition, AR Huang found that permitting the Claimant to rely on a bare assertion of the Defendant’s inability to pay the Debt would be contrary to the legislative scheme for the statutory demand (at [19]). We set out [19] in full below:
“19 I would add that to permit the Claimant to rely on a bare assertion of the Defendant’s inability to pay the Debt in the present case would also turn the legislative scheme for the statutory demand under s 312(a) IRDA on its head. As explained at [1] above, the objective of this scheme is to allow a creditor to file a bankruptcy application without adducing any other evidence to show that the debtor is unable to pay the debt. Under s 312(a), 21 days must elapse without the debtor complying with the statutory demand or applying to set it aside before the presumption of inability to pay the debt arises. This is an essential safeguard: even in the exceptional case of an expedited bankruptcy application under s 314 IRDA, the bankruptcy order cannot be made until the period of 21 days has elapsed (see [14] above). There are also numerous other safeguards as to the format, contents, and service of the statutory demand found in the Personal Insolvency Rules (see rr 64–66). Yet in the present case, the Claimant argues that it can rely on a bare assertion of inability to pay a debt to mount a bankruptcy application, throwing the evidential burden upon the Defendant to rebut this assertion without having adduced any evidence to support it. This is little different in reality from the effect of the s 312(a) presumption, which casts the legal burden upon the debtor to rebut the presumption. The Claimant could not be permitted to bypass the legislative scheme for the statutory demand in this manner.”
(our emphasis added)
Issue of jurisdiction. The Claimant also sought to argue that s 430(1) IRDA and r 186 of the Personal Insolvency Rules applied “to cure what it suggested was a formal defect or irregularity in the Application” (at [20]).
However, AR Huang was of the view that “compliance with s 311(1) IRDA goes to the jurisdiction of the court to entertain a bankruptcy application” (at [25]), so that a failure to comply with any of the limbs is not merely a defect or irregularity which could be regularised (at [26]).
“25 First, I am of the view that compliance with s 311(1) IRDA goes to the jurisdiction of the court to entertain a bankruptcy application. The jurisdiction of the court is, as the Court of Appeal explained in Re Nalpon Zero Geraldo Mario [2013] 3 SLR 258 at [31], “its authority, however derived, to hear and determine a dispute”. The jurisdiction of the General Division of the High Court to hear a bankruptcy application derives from Part 16 of the IRDA (see, in this regard, s 3 IRDA and s 17(1)(c) of the Supreme Court of Judicature Act 1969 (2020 Rev Ed)). There appear to be three sets of provisions in Part 16 that set out the parameters of the court’s jurisdiction to entertain a bankruptcy application: ss 307–308 IRDA, which pertain to the identity of the applicant; s 310 IRDA, which pertains to the characteristics of the debtor; and s 311 IRDA, which pertains to the debt that is the basis for the bankruptcy application. To this end, each of these provisions is expressed in terms of when a bankruptcy application may, or may not, be made to the court. This may be contrasted with other provisions in Part 16, which spell out the conditions for the court to make an order on a bankruptcy application or which specify the powers of the court (see, eg, ss 315–322).
26 If the grounds in s 311(1) IRDA are jurisdictional in nature, then a failure to comply with any of its limbs cannot be said to merely be a formal defect or an irregularity, regardless of the apparent triviality of the failure. For instance, one would not expect it to be possible to cure any failure to meet the prescribed debt threshold of $15,000 under s 311(1)(a) IRDA by reliance on s 430(1) IRDA: if a creditor’s bankruptcy application were made on a day when the debtor owed the creditor $14,999, the creditor cannot expect to cure this defect in its application (see Ng Shu Yi at [47]) with reference to the fact that the debt would have exceeded $15,000 the very next day as a result of interest accruing. Likewise, in the present case the Claimant cannot seek to regularise the Application with reference to the fact that it was made one day shy of the s 312(a) presumption, or that it could have easily proven the Defendant’s inability to pay the Debt (but did not).”
(our emphasis added)
Is there an exception? As alluded to by AR Huang in the decision, there is an exception where the creditor can seek to rely on the presumption but still file the application before the expiry of 21 days.
Pursuant to s 314 IRDA, “… a bankruptcy application that relies on a statutory demand [can] be made before the period of 21 days under s 312(a)(i) has elapsed if there is a “serious possibility” of a significant diminution in value of the debtor’s property during that period, and where the bankruptcy application contains a statement to this effect.” (at [14]; emphasis in original)
“14 … Where s 314 IRDA is invoked, the bankruptcy order can nevertheless only be made after the period of 21 days has elapsed: s 316(2). The effect of s 314, read together with ss 311(1) and 316(2), must be to permit reliance on the s 312(a) presumption in such cases to show that the debtor is unable to pay the debt, notwithstanding that the presumption only arose after the application was filed. …”
However, in the present case, the Claimant did not seek to rely on s 314 IRDA (at [14]).
Significance. As AR Huang observed, a common way of proving that a debtor is unable to pay the debt owed to a creditor is to rely on the presumption that arises under s 312(a) IRDA as the result of the non-satisfaction of a (duly served) statutory demand.
This decision is therefore an important reminder on the timing of bankruptcy applications.
21 days must elapse since the service of the statutory demand in order for the s 312(a) IRDA presumption to arise as to the Defendant’s inability to pay the debt pursuant to s 311(1)(c) IRDA.
And you must calculate 21 days in strict compliance with all the relevant statutory provisions.
A failure to comply with s 311(1) IRDA goes to the jurisdiction of the court to entertain the bankruptcy application and is not a mere formal defect or irregularity that can be regularised.
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