COVID-19: Service of statutory demands and bankruptcy winding-up petitions – what should you do?

The current pandemic has caused many businesses to consider their ways of working and put in place contingency planning.

We have recently been informed that as a result of the Prime Minister’s announcement last week, process servers are no longer able to attempt personal service of statutory demands and/or bankruptcy petitions and/or winding-up petitions. As a firm we are of course in agreement with this undertaken by the respective process server firms. However, business must go on and creditors will now have to consider how best to affect correct service on debtors.

What are the rules surrounding service of a statutory demand on an individual?

A statutory demand should be served personally on a debtor. Pursuant to Rule 10.2 of the Insolvency Rules 2016 (IR 2016), when serving a statutory demand, the creditor must:

‘do all that is reasonable to bring the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, serve the demand personally’

There is further guidance within the Practice Direction – Insolvency Proceedings (PDIP) which states at 11.2:

‘Rule 10.2 applies to service of a statutory demand whether within or out of the jurisdiction. If personal service is not practicable in the particular circumstances, a creditor must do all that is reasonable to bring the statutory demand to the debtor’s attention. This could include taking those steps set out at paragraph 12.7 below which justify the Court making an order for service of a bankruptcy petition other than by personal service. It may also include any other form of physical or electronic communication which will bring the statutory demand to the notice of the debtor.’

 

12.7.2(b) of the PDIP provides:

 

‘(b)  in the case of a statutory demand as suggested in paragraph 11.2 above, reference is being made to this paragraph for the purpose of service of a statutory demand, the appointment letter should state that if the debtor fails to keep the appointment the creditor proposes to serve the demand by advertisement/ post/ insertion through a letter box as the case may be, and that, in the event of a bankruptcy petition being presented, the Court will be asked to treat such service as service of the demand on the debtor.’

Accordingly, personal service should be attempted. This of course cannot be completed in light of the current lockdown. The wording of paragraph 11.2 of the PDIP is clear that the steps could include taking steps in paragraph 12.7.2, but this does not appear to be fatal.

What should a creditor do in the current circumstances?

Provided that personal service cannot be effected and/or an appointment letter cannot be sent, a creditor must do all that is reasonable to bring the statutory demand to the debtor’s attention. This could include:

• 1^st class post to residential address
• 1^st class post to business address
• WhatsApp/Facebook/twitter private messaging (alternate service via social media platforms has been allowed in court proceedings)
• Email
• Service on legal representatives (if instructed to accept service)
• Any other form of communication available

Provided the available steps are undertaken, a creditor can then file a certificate of service pursuant to Rule 10.3 IR 2016. Sub-paragraphs 5 and 6 provide:

‘(5)  If the demand has been served other than personally and there is no acknowledgement of service, the certificate must be authenticated by a person or persons having direct personal knowledge of the means adopted for serving the statutory demand, and must contain the following information—

(a)  the steps taken to serve the demand; and

(b)  a date by which, to the best of the knowledge, information and belief of the person authenticating the certificate, the demand will have come to the debtor’s attention.

(6)  Where paragraph (5) applies the statutory demand is deemed to have been served on the debtor on the date referred to in paragraph (5)(b) unless the court determines otherwise.’

The certificate should set out all steps taken and set out the current circumstances surrounding the unavailability of process servers in light of the COVID-19 outbreak. If the statutory demand is acknowledged, this should be reflected within the certificate of service pursuant to Rule 10.4.

Rule 10.3 makes no mention of applying for an order for sub-service and we are not aware of any successful applications made in this regard. It is normal for the court to decide whether service has been effected properly, and the court may decline to file the petition if not satisfied that the creditor has discharged the obligation imposed by rule 10.2 of the IR 2016.

What about service of a statutory demand on a company?

The rules on service on a company are different to individuals. Pursuant to section 123(1)(a) of the Insolvency Act 1986, a statutory demand should be served on a company by leaving it at the company’s registered office.

Service may be effected by registered post to the company’s registered office provided that it can be shown that the company received the statutory demand.

I have an issued bankruptcy petition but cannot personally serve – what should I do?

Under Rule 10.4 IR 2016, a petitioner must serve a sealed copy of the bankruptcy petition on the debtor in accordance with Schedule 4 of the IR 2016. In an ideal world this is effected by way of personal service.

Pursuant to paragraph 1(5) of Schedule 4 IR 2016, if there are difficulties effecting service (such as due to COVID-19), a creditor can make an application and ask the court to order service to be effected in such other manner as the court may permit, approve or direct. Such service can include one or more of the above listed methods of service.

Rule 10.21 IR 2016 provides that a petition may not be heard until at least 14 days have elapsed since it was served on the debtor. Accordingly, creditors should ensure that applications effecting service are made as soon as possible and several weeks prior to any hearings so that they do not fall foul of this rule.

Rule 10.21 does allow the court to exercise its discretion to remedy any defect or irregularity in service where the petitioner has done all that was reasonable, no injustice has been suffered by the debtor in the proceedings or where the debtor consents. Rule 12.64 further provides the court with a general discretion to remedy any defect or irregularity in insolvency proceedings.

What about service of a winding-up petition?

Under Rule 7.9(1) IR 2016, a petitioner must serve a sealed copy of the bankruptcy petition on the company in accordance with Schedule 4 of the IR 2016. Again, in an ideal world this is effected by way of personal service. This must be served at a company’s registered office by handing it to a person at that address who

‘(a) at the time of service acknowledges being a director, other officer or employee of the company;

(b) is, to the best of the knowledge and belief of the person serving the petition, a director, other officer or employee of the company; or

(c) acknowledges being authorised to accept service of documents on the company’s behalf.’

If there is no one of the kind mentioned above at the registered office, the petition may be served by depositing it at or about the registered office in such a way that it is likely to come to the notice of a person attending the office.

If it is not practicable to serve a petition at a company’s registered office (such as due to COVID-19), pursuant to paragraph 2(4) of Schedule 4 IR 2016 a petition may be served

‘(a) by leaving it at the company’s last known principal place of business in England and Wales in such a way that it is likely to come to the attention of a person attending there; or

(b)   on the secretary or a director, manager or principal officer of the company, wherever that person may be found.’

We should suggest that creditors exercise caution in this regard and seek confirmation that a petition has been received by the debtor. If there are concerns that a winding-up petition would not come to the attention of a person attending the registered office given lockdown, we suggest that it would be best practice to make an application for an order that service may be effected in such other manner as the court may approve or direct – allowed pursuant to paragraph 1(5), Schedule 4, IR 2016.  This could, include electronic correspondence to the directors.

General theme and position of the courts

We are all in unchartered territory at this stage and it remains to be seen quite how the court system will deal with some of the above issues.

We are, however, aware that the courts have recently adjourned all winding up petitions for many months. We suspect that this theme will likely continue with bankruptcy petitions.

If you have any questions, please contact senior insolvency lawyer, Alex Neale