In so doing, the Bankruptcy Division brought clarifications on the meaning of the core criteria to be satisfied in order to succeed with an application to set aside a statutory demand which is often perceived as a fast track avenue to place a Mauritian company into insolvency.
By way of background, Alteo Agri (supra) concerned a challenge by Alteo Agri Ltd (the Applicant) to pay to Ramasawmy & Ramasawmy Co. Ltd (the Respondent) the sum of MUR 2,041,950.89 [±USD 54,000] (Money Claimed). The Respondent demanded payment for the Money Claimed through a statutory demand which it served on the Applicant. It was the case for the Applicant that the statutory demand should be set aside because:
(i) there was a serious and genuine dispute whether the Applicant owed the Money Claimed to the Respondent
(ii) the statutory demand was an abuse of process of the court because the Respondent had already submitted a claim to a third party in respect of the Money Claimed in an invoice dated 23 December 2016 for the construction of a villa for the third party and,
(iii) the Respondent was pressuring the Applicant to pay the Money Claimed because it failed to recover the Money Claimed from the third party with whom the Respondent had entered into a contract which clearly stated that the Respondent would be paid by the third party.
The Applicant was merely the development manager for the third party and was responsible for managing, administering and coordinating the execution of specific items in relation to the third party’s villa.
GUIDELINES ON GROUNDS THAT MUST BE SATISFIED IN ORDER TO SET ASIDE A STATUTORY DEMAND
From a review of Alteo Agri (supra), the test which it lays down is whether the Applicant has established on a balance of probabilities that:
(i) the dispute regarding the existence of the Money Claimed is genuine i.e. it is based on a proper foundation and,
(ii) the Applicant has a fairly arguable case based on facts which have at least the appearance of sufficient reliability and which may lead the Bankruptcy Division to accept its contentions as correct.
A review of each component identified by the Bankruptcy Division is set out below.
Substantial dispute whether the debt is owing or is due – section 181(4)(a) Insolvency Act
The Bankruptcy Division held that the Applicant had an obligation to prove the existence of ‘an arguably genuine and substantial dispute between the parties’ on a balance of probabilities.
Meaning of ‘an arguably genuine and substantial dispute between the parties’
The Bankruptcy Division held that this meant the Applicant had to lay a proper foundation for the dispute which would lead the Bankruptcy Division to conclude that there was a fairly arguable basis upon which the Applicant was not liable for the Money Claimed. In other words, there must be ‘sufficient material to support the contention that the [Money Claimed] is disputed’ and this must be detailed in the application to set aside the statutory demand.
From the perspective of the Bankruptcy Division, it held that its duty was not to ‘embark on an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute [because there] is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.’ Furthermore, there was no requirement for the Bankruptcy Division to ‘weigh the merits of the dispute or to determine the dispute itself.’
Thus, the Bankruptcy Division was merely required to ascertain whether there was a substantial dispute on the existence of the Money Claimed.
Meaning of ‘genuine dispute’
The Bankruptcy Division held that a mere assertion by the Applicant that there was a substantial dispute that the debt was owed or owing was not sufficient.
Instead, the application itself had to particularise the debt in the sense that the Bankruptcy Division would be in a position to conclude that ‘there was sufficient material to support the contention that the [Money Claimed] is disputed.’ As to the evidence, it had to be such as it would enable the Bankruptcy Division to adopt a common sense approach when examining the evidence ‘analytically’ …/… ‘[so it] connotes a plausible connection requiring further investigation’. In other words, the ‘dispute must be bona fide and truly exist in fact.’
Overall therefore, what the Applicant had to establish on a balance of probabilities was the following:
- the dispute was bona fide and truly exists in fact; and
- the grounds for alleging the existence of a dispute were real and not spurious, hypothetical, illusory or misconceived.
Meaning of ‘substantial dispute’
The Bankruptcy Division held that the phrase ‘substantial dispute’ referred to a genuine dispute which ‘seriously questioned the existence of the [Money Claimed]’.
Applied to the facts of the Alteo Agri (supra) case, the Bankruptcy Division was satisfied that the development management contract expressly stated that one of the duties of the development manager i.e. the Applicant was the responsibility to pay the contractor i.e. the Respondent. The Bankruptcy Division was further satisfied that the Money Claimed was due to the Respondent and that it was neither the subject of a substantial dispute nor the subject of the other statutory grounds permissible under the Insolvency Act in order to apply for a statutory demand to be set aside.
The statutory deadline for challenging the decision of the Bankruptcy Division in Alteo Agri (supra) has not lapsed, meaning there is still the possibility that the decision will be appealed upon. Nevertheless, the fact remains that judgments by the Bankruptcy Division in the nature of Alteo Agri (supra) are insightful as they bring clarity to the scope and meaning of key criteria that have a direct and vital bearing on the question of whether a Mauritian company will remain a going concern. At a wider level, this decision shows the concern of the Bankruptcy Division to strike a key balance between on the one hand, the legitimate interests of creditors and, on the other hand the legitimate interests of a company to continue its business operations without the potential threat of insolvency which a statutory demand represents.
Vaishali Damonaiko, Pupil to Sharmilla Bhima, also helped with the preparation of this article.