Creditor’s bankruptcy petition - grounds
(Amended October 2010)
A creditor’s petition must be in respect of a debt that the debtor owes and the petitioner must be the person to whom the debt is owed [Note 1].
Two or more creditors can combine to petition.
A creditor’s petition may be presented to the court only if at the time of the presentation [Note 2]:
a. the amount of the debt (or aggregate of debts) is equal to or more than £750;
b. the debt, or each of the debts, is for a liquidated sum payable to the petitioner either immediately or at some certain future time, and is unsecured;
c. the debtor is either unable to pay the debt or appears to have no reasonable prospect of being able to pay; and
d. there is no outstanding application to set aside the statutory demand on which the petition is based.
The debt must still be outstanding at the date of the hearing [Note 3].
A debt which is the debt , or one of the debts, in respect of which a creditor’s petition is presented need not be unsecured if either [Note 4]:
a. the petition contains a statement by the person having the right to enforce the security that he is willing, in the event of a bankruptcy order being made, to give up his security for the benefit of all the bankrupt’s creditors, or
b. the petition is expressed not to be made in respect of the secured part of the debt and contains a statement by that person of the estimated value at the date of the petition of the security for the secured part of the debt.
The bankruptcy level is currently £750 but may be changed by order of the Secretary of State in a statutory instrument and subject to approval by both Houses of Parliament [Note 5].
A debtor appears to be unable to pay a debt if the debt is payable immediately and either [Note 6]:
a. the petitioning creditor has served on the debtor a statutory demand in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least three weeks have passed since the demand was served and the demand has been neither complied with nor set aside, or
b. execution or any other action on a judgment in respect of the debt has been returned unsatisfied in whole or in part.
A debtor appears to have no reasonable prospect of being able to pay a debt if the debt is not immediately payable and [Note 7]:
a. the petitioning creditor has served on the debtor a statutory demand in the prescribed form requiring him to establish to the satisfaction of the creditor that there is reasonable prospect that the debtor will be able to pay the debt when it falls due,
b. at least three weeks have elapsed since the demand was served, and
c. the demand has been neither complied with nor set aside.
Where a creditor is claiming that a debtor appears to have no reasonable prospect of paying a debt (that is, where the debt is payable at some future date), the petitioner may, on the debtor’s application, be required to give security for the debtor’s costs. The amount is subject to the court’s discretion and must be paid in full before the petition can be heard [Note 8].
The 3 weeks allowed for a debtor to comply with a statutory demand can be cut short and the petition presented prematurely if the petition alleges that there is a serious possibility of a significant fall in the value of the debtor’s assets during that period. The provisions of section 270 (expedited petition) can be invoked even though there is an extant set aside application with respect to the statutory demand [Note 9].
However, a bankruptcy order cannot be made until the expiry of the 3 weeks from service of the statutory demand, in which case the court may appoint an interim receiver on presentation of the petition [Note 10].