Statutory Demands – A Review Of Recent Decisions – Insolvency/Bankruptcy

INSOLVENCY – The bankruptcy division of Mauritian Supreme
Court re-affirms the test to determine the existence of a
substantial and genuine dispute when setting aside a statutory
demand. In this article, we review the recent determinations of the
Bankruptcy Division of the Supreme Court of Mauritius (Bankruptcy
Division) in which it re-affirmed the tests to determine an
application to set aside a statutory demand under section 181 of
the Insolvency Act 2009 (‘Insolvency Act’).

In this regard, the Bankruptcy Division cited with approval the
test which it laid down in Cargo Handling Corporation Ltd v
Fast Shipping & Transportation Co. Ltd 2022 SCJ 419 (Cargo
Handling case).

In the Cargo Handling case, the Bankruptcy Division confirmed
that in order to succeed with its application to set aside a
statutory demand, an applicant must go beyond a mere assertion that
there exists a dispute on the existence of a debt.

Indeed, the Cargo Handling case established that a person who
applies to the Bankruptcy Division to set aside a statutory demand
must bring “material short of proof …/… [that] the debt is
disputed.” This requirement casts a positive obligation on the
applicant to establish the following two components:

• first, the applicant must lay a proper foundation for the
  dispute;




• secondly, the applicant’s assertions must pass the
  threshold of credibility

In brief, the Bankruptcy Division must be in presence of
“information which, …/… at least has the appearance of
sufficient reliability that it can be said that a court dealing
with the matter could accept the account given as being
correct.”

The Bankruptcy Division made it clear that for these purposes,
the information which an applicant places before the Bankruptcy
Division does not have to lead the Bankruptcy Division “to
the point where it is able to conclude that the information is
correct.”

SUCCESSFUL APPLICATIONS TO SET ASIDE A STATUTORY
DEMAND

• Best For Less Company Ltd (Commercial Division) v NJC
  Associates 2024 SCJ 136




• Banyantree Capital Advisors Limited v Silver Bank Limited,
  formerly Known as Banyantree Bank Limited 2024 SCJ 3




• Afritex Fishing LTD v Hargraves Glenn Roy 2024 SCJ 47

BEST FOR LESS CASE

In the Best for Less case, the Bankruptcy Division was satisfied
that (i) the applicant established that there was a substantial
dispute that a debt was due and, (ii) the dispute was one which
would be determined after the Bankruptcy Division heard
witnesses.

The Bankruptcy Division confirmed that its function was limited to
ascertaining whether there was a substantial dispute between the
parties that a debt was due as opposed to determining the dispute
itself. The mere assertion that there was a genuine and substantial
dispute was not sufficient.

BANYANTREE CAPITAL CASE

In the Banyantree Capital case, the Bankruptcy Division was
satisfied that the Banyantree Capital Advisors Limited had
satisfied the test of sufficient reliability in respect of the
statutory demand which Silver Bank Limited served on them in the
sums of GBP 1,111,074 and USD 1,453,009.

In response to the claim under the statutory demand, Banyantree
Capital Advisors Limited applied to the Bankruptcy Division to set
aside the statutory demand on the grounds, amongst others, that
there was a genuine and substantial dispute regarding the existence
of the debt which Silver Bank Limited was claiming as due to it.
Banyantree Capital argued that despite the entry in their records
that the sums claimed represented loans, the reality was that these
were investments.

As to Silver Bank Limited, its argument was that (i) the wording
of the loan agreements made it clear that the sums due arose under
interest-bearing loan agreements and, (ii) these amounts were now
due and demandable because Banyantree Capital Advisors Limited were
in default under the loan agreements.

In determining whether the was a substantial dispute on whether
the debt was due, the Bankruptcy Division focused on the legal test
namely, whether there the information placed before the court was
sufficiently reliable for the court to accept the version of
Banyantree Capital Advisors Limited.

The Bankruptcy Division held that the application passed the
test of sufficient reliability because Banyantree had established
that there were questions of fact that were disputed substantially
and could only be properly determined after a full hearing on the
matter.

In reaching its determination, the Bankruptcy Division cited
with approval the case of Areff International Ltd v ZSI Trading
LLP 2015 SCJ 437 which states that the task of the court in an
application is to ascertain the existence, if any, of a
substantial, genuine dispute as opposed to making a final
assessment of the merits of that dispute. The statutory demand was
therefore set aside.

AFRITEX CASE

Finally, in the Afritex case, the Bankruptcy Division
was satisfied that the information presented by the applicant
disclosed a proper foundation that there was a genuine and
substantial dispute as to whether the applicant was liable for the
amount claimed.

The Bankruptcy Division found that the applicant had made a
detailed factual averment which now had to be put to the test
before a court of law.

Overall, the applicant’s assertion had sufficient prima
facie plausibility that would require full investigation as to the
truth and correctness.

UNSUCCESSFUL APPLICATIONS TO SET ASIDE A STATUTORY
DEMAND

The Bankruptcy Division turned down the applications to set
aside a statutory demand in the following cases.

• Super Oil Ltd v Phil Alain Didier Company Limited (In
  Liquidation) 2024 SCJ 125




• Baumax Rentals Ltd v Phil Alain Didier Company Limited (In
  Liquidation) 2024 SCJ 124




• Solar Transit Africa Ltd v Mauri-China Freezone Development Ltd
  2024 SCJ 30 (‘Solar Transit’)




• Four H Company Ltd v Phil Alain Didier Company Ltd (in
  liquidation) 2024 SCJ 8 (‘Four H’)

SUPER OIL CASE & BAUMAX CASE

In the Super Oil Case and the Baumax Case, the Bankruptcy
Division applied the recent advice of the Judicial Committee of the
Privy Council in Katra Holdings Ltd v Standard Chartered Bank
(Mauritius) Ltd 2024 UKPC 8 by which the burden of proof
remains on the applicant to demonstrate that (i) there is a genuine
and substantial dispute on the existence of the debt being
challenged and, (ii) there is a fairly arguable basis upon which
the applicant is not liable for the amount claimed.

In both cases, the Bankruptcy Division was satisfied that the
applicants had failed to establish that there was a basis on which
each applicant could dispute the existence of the debt being due in
the statutory demand.

SOLAR TRANSIT CASE

In the Solar Transit case, the sum claimed in the statutory
demand was based on a debt settlement agreement entered into by the
parties for the rental of warehousing and related services.

However, the distinctiveness of this application to set aside a
statutory demand was that sum claimed in the statutory demand also
comprised (i) attorney’s commission and (ii) 15% VAT arising
under the attorney’s commission over and above the rental of
warehousing and related services.

On the faith of the debt settlement agreement, the Bankruptcy
Division was satisfied of the following:

1. there was an acknowledgement of debt in the sum of MUR
   855,359.29 which the parties had agreed would be paid in weekly
   instalments of MUR 75,000 as from 07 February 2020;




2. there was a monthly rental of MUR 208,878.08 together with
   interest at 1.5% arising for late payment.




3. This brought the amount due to MUR 3,941,629.65;




4. the debt settlement agreement did not record any agreement by
   the parties on attorney’s commission plus 15% VAT of 15%.
   Accordingly, this was disallowed.

FOUR H CASE

In the Four H case, the sum claimed was of the order of MUR
130,868.59 and represented a loan which Phil Alain Didier Company
Ltd (Respondent) extended to Four H Company Ltd (Applicant). These
companies were related as they shared the same directors.

The statutory demand was for the sum of MUR 130,868.59 and
represented a loan which the Respondent had advanced to the
Applicant. The Respondent justified the quantum claimed on the
basis of 2 financial documents namely, (i) the audited financial
statements for the year ended 30 June 2019 and, (ii) the statement
of financial position as at 07 July 2020.

The Applicant justified its application to set aside the
statutory demand on the premise that it was a solvent company and
the 2 financial documents submitted by the Respondent were
unreliable. In particular, the Applicant argued that the figures in
these documents were just book debts for accounting purposes and it
was not safe to rely on these the more so there was a discrepancy
in the documents as regards the unsecured loan amounts.

CONCLUSION

In the absence of the equivalent of Chapter 11 proceedings and
pre-pack administration under our laws (please refer to our EAlert
dated 26 April 2022), the statutory demand remains a powerful tool
in the hands of a creditor in cross-border transactions. In
continuing to provide certainty and clarity in applications under
section 181 of the Insolvency Act to set aside statutory demands,
the Bankruptcy Division of the Mauritian Supreme Court plays a
vital role in re-assuring investors that the Mauritian
international financial centre as one of choice for investors.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.