10 February 2014

Insolvency Law — Bankruptcy — Statutory Demand

Facts

In 2012, the plaintiff negotiated with the defendant over his unpaid taxes and an instalment repayment plan was agreed, which the plaintiff adhered to throughout the year.  After being retrenched in January 2013, the plaintiff informed the defendant that he would have difficulties adhering to the repayment plan for 2013 and was granted a revised instalment plan until March 2013.  The plaintiff adhered to the revised plan. In March 2013, the plaintiff was granted another revised instalment plan until May 2013. In addition, both parties agreed to meet again in May 2013 to discuss in good faith and reach a reasonable agreement for future instalments in light of any new employment status (the “Agreement”). The plaintiff again adhered to the revised plan.

In May 2013, the defendant informed the plaintiff that further extended or temporary instalment payment plans would not be considered. In addition, the plaintiff was told to maintain sufficient funds in his bank account to make full payment by Giro of his tax arrears amounting to S$117,716.92, failing which recovery action including legal proceedings would be taken against him. In response, the plaintiff wrote to the defendant and made reference to the Agreement, stating that he would not be able to make payment of his tax arrears.

When the plaintiff’s tax arrears were not settled in June, the defendant offered an extension of two weeks for the amount to be paid.  The plaintiff again wrote to the defendant, made reference to the Agreement and stated that he would not be able to pay his tax arrears by the deadline. The defendant in its response offered to allow the plaintiff to pay his tax arrears by way of three monthly payments from July to September 2013.  This was followed by another payment plan proposal whereby the plaintiff would be allowed to pay his tax arrears, including his Years of Assessment (YA) 2013 tax, by way of monthly instalments from September 2013 to September 2014.  The date to pay the first monthly instalment was subsequently extended by two weeks and the plaintiff was also allowed to propose an alternate payment proposal before then.  In the meantime, the plaintiff secured employment as a partner of a law firm in July 2013.

In September 2013, the plaintiff submitted his payment proposal.  This was, however, rejected by the defendant on the grounds that many attempts had been made to accommodate the plaintiff, and it could not agree to the plaintiff’s proposal as the tax arrears had long been outstanding. The defendant also informed the plaintiff that it would commence proceedings to recover the tax arrears.

In October 2013, the defendant served a statutory demand on the plaintiff in respect of unpaid taxes totalling S$111,716.92 for YA 2010 to 2012.

Subsequently, the plaintiff filed an application pursuant to rule 97 of the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (“Bankruptcy Rules”) to set aside the statutory demand.

Issues

• The plaintiff relied on rules 98(2)(b) and (e) of the Bankruptcy Rules, which provide that the court shall set aside a statutory demand, if the underlying debt is disputed on grounds which appear to the court to be substantial, or if the court is satisfied, on other grounds, that the demand ought to be set aside.  The test to be applied in an application to set aside a statutory demand is therefore, whether or not there is some real doubt, or triable issues, to go to trial.
• Whether the defendant should be estopped from claiming on an immediate full repayment of the debt by reason that it would be unfair for the defendant to retract from the Agreement.

Conclusion

The plaintiff’s application to set aside the statutory demand was declined on the following grounds:

• The Agreement was too uncertain to be enforced. There was no clarity nor any agreed criteria as to what would amount to a “reasonable” agreement. There was no agreed process or mechanism to resolve matters, if negotiations between the parties proved unsuccessful or if the parties disagreed as to what instalment plan was reasonable.
• The court was also not satisfied that a triable issue has been raised as to whether the defendant should be estopped from claiming an immediate full repayment of the debt from the plaintiff.  While there was clearly a representation by the defendant that included a promise that the parties would negotiate in good faith, the court was not convinced that the promise was that the debt would not be enforced until negotiations culminated in a reasonable agreement between the parties. There was no clear promise that the defendant would not pursue its legal rights until a reasonable agreement was reached. Furthermore, it was unclear how such an agreement was intended to be reached or how disagreements between the parties (including as to what was “reasonable”) were to be dealt with. The promise was therefore not sufficiently unambiguous, clear and certain for estoppel to be invoked.

The defendant was therefore authorised to file a bankruptcy application against the plaintiff, pursuant to rule 98(3) of the Bankruptcy Rules.

The above judgement was delivered on 29 January 2014.