In a number of recent cases, borrowers have produced a detailed forensic analysis of the accrual of interest on their accounts by lenders alleging that any error in the calculation of interest invalidates the demand made by the lender and any appointment of a receiver on foot thereof.
The English case of County Leasing Limited –v- East is persuasive authority for the proposition that demands on foot of loan agreements do not have to be accurate in this regard.
While that case has been relied upon, on occasion, without attracting judicial comment, it was recently cited with approval in Flynn –v- National Asset Loan Management Ltd & Ors. In that case the court held:
“... it seems clear that the letter of demand, even if it did overstate the amount due from the defendants to NALM, is still a valid of letter of demand. In the circumstances, the submission of the defendants that the letter of demand is invalid is not well founded.”
In Flynn, the court distinguished the case before it from the case of a demand made pursuant to statute. With respect to statutory demands the position varies between demands to ground a bankruptcy summons and those intended to demonstrate that a company is unable to pay its debts to ground a petition to liquidate a company.
It has been clear for over a hundred years that a statutory demand to ground a bankruptcy summons cannot overstate the amount due from the debtor by even a token amount. In re A Debtor, where there was a miscalculation of interest that appears to have been between one and two pounds, Cozens-Hardy MR held:
“On principle I am not prepared to accede to that argument. I cannot regard it as a mere formal defect that you claim payment from a man of that which never was due from him.”
This position has been affirmed on a number of occasions, and in AIB v. Yates the court held:
“…I think it is clear beyond doubt that if the amount claimed on foot of the bankruptcy summons is in excess of that which is actually due, then in those circumstances there is no obligation to pay the amount claimed on foot of the bankruptcy summons and a failure to pay on foot of that summons will not constitute an act of bankruptcy.”
However, there is no difficulty in demanding less than what is due. Murphy –v Bank of Ireland and the Official Assignee, concerned a demand that was actually below the amount due to the bank, by virtue of the accrual of interest, which was not claimed in the demand, or the bankruptcy summons and despite the fact that the bank had failed to give credit for a sum of money paid by a tenant. Dunne J., giving judgment for the majority of the Supreme Court held:
“As I have said, the purpose of the requirement of strict compliance is to ensure that an individual is not adjudicated bankrupt in respect of a sum which is not due. It is difficult to see how that requirement could be used for the benefit of a debtor and to the detriment of a creditor in circumstances where the debtor was not asked to pay more than was due but, in fact, was asked for less than was due.”
One comment of McKechnie J. (dissenting) is also worthy of note:
“The opposite equally applies: the creditor in this case could have picked any part of the judgment debt, above the statutory minimum, and could have operated the process on that basis. That was the Bank’s choice. It had entire control over what it did. But as I have said, once a particular course is decided upon, it must be implemented and must be followed through with.”
The position in relation to a statutory demand pursuant to s 214 of the Companies Act 1963 seems to be different in that an excessive demand does not automatically invalidate the winding up petition. In Cardiff Preserved Coal and Coke Co. v. Norton Lord Chelmsford L.C. said:
“It was contended that the winding up order was bad because Mr. Hill had demanded a sum of £628, and it appeared that he was entitled only to £411 7s 9d; and the 67th and 68th sections of the Act make a company liable to be wound up only when a demand is made of a certain sum, and the company neglect to pay such sum, which in this case they were not bound to pay. But the liability of a company to be wound up under these provisions arises when a creditor, to whom the company is indebted above £50, serves a demand requiring the company to pay the sum so due, and the company for a certain time neglect to pay such sum. In this case there was a debt of more than £50 due to Mr. Hill. He made, it is true, a demand upon the company for payment of more than was due, but of course the amount due was known to the company, and was included in the demand, and the company neglected to pay ‘such sum,’ which means not the sum demanded, but the sum due, which they might have paid, and so have prevented the order being made. The construction contended for would make every winding up order bad where the creditor had demanded the smallest sum above what was actually due to him.”
In the English case of Re: A Company, the Court, distinguishing that case from Cardiff, held:
“When the demand was made, the amount due to the petitioner was not known to the company. It is still not known. At the time of the demand the company knew there was a dispute and were willing to pay £2,234.38 but that is not to say that they knew that the sum due was £2,234.38. They knew that the petitioner was alleging the sum due to be £12,435.75. As to the petitioner, it knew that the company were disputing liability in that sum. In these circumstances I do not see how the petitioner was in any position to make a genuine demand for a specified sum. Section 223(a) contemplates a creditor being able to point to a debt of a specified sum that cannot be seriously questioned either as to existence or quantum. It follows that the petitioner was not at liberty to make use of section 223(a). The position is no doubt otherwise when a petitioner can, without serious argument, allege a debt of a specified sum but by inadvertence specifies the sum wrongly in a statutory demand.”
While creditors should strive to correctly state the amount due on demand, an error, due to inadvertence, in a contractual demand, pursuant to a facility letter, should not invalidate that demand.
In relation to statutory demands to ground a winding up petition, it appears that a genuine error on the face of the demand may be acceptable where:
- there is an undisputed debt due from the debtor for more than the statutory minimum; and
- there is no counterclaim that could be set off against the undisputed debt leaving an amount less than the statutory minimum due.
In relation to statutory demands to ground creditors’ bankruptcy petitions, it appears that a demand that is one cent in excess of the amount due will be invalid.
  EWHC 2907 Q.B.
  7 JIC 2505.
  2 K.B. 684
  IEHC 36.
 Supreme Court, unreported, 7 March 2014.
 (1867) L.R. 2 Ch.App. 405.
  1 W.L.R. 1090.