In the recent case of Doherty v Fannigan Holdings Limited  EWCA Civ 1615, the Court of Appeal considered whether a statutory demand could be served where the creditor had not performed part of a contract which it was required to in order for the debtor’s liability to pay to arise.
The parties in this case had entered into a contract whereby shares were to be transferred in numerous tranches over a number of years, with consideration to be paid at the time of each individual transfer. A £2m payment was due to be made on 1 July 2015, but this was not paid and as such the shares were not transferred. Instead, the statutory demand was issued, followed by an application to set aside the demand.
At first instance, and at the Court of Appeal, the demand was set aside.
The Court of Appeal noted that the question was whether the obligation to pay £2m was dependent on the shares having been transferred. If it was, there was no entitlement to payment and thus the demand should be set aside. If the obligation was not dependent, the statutory demand could stand.
The court held the obligations were dependent and as such neither party could enforce performance except against their own performance. The only option therefore available was to sue for specific performance and not to pursue a debt that did not exist. The lesson to be learned is that proper and careful consideration needs to be given to interpretation of a contractual agreements.
For more information please contact Alexandra Withers, Associate in the Insolvency Department.