In this regard, the Bankruptcy Division cited with approval the test which it laid down in Cargo Handling Corporation Ltd v Fast Shipping & Transportation Co. Ltd 2022 SCJ 419 (Cargo Handling case).

In the Cargo Handling case, the Bankruptcy Division confirmed that in order to succeed with its application to set aside a statutory demand, an applicant must go beyond a mere assertion that there exists a dispute on the existence of a debt.

Indeed, the Cargo Handling case established that a person who applies to the Bankruptcy Division to set aside a statutory demand must bring “material short of proof …/… [that] the debt is disputed.” This requirement casts a positive obligation on the applicant to establish the following two components:

first, the applicant must lay a proper foundation for the dispute;
secondly, the applicant’s assertions must pass the threshold of credibility

In brief, the Bankruptcy Division must be in presence of “information which, …/… at least has the appearance of sufficient reliability that it can be said that a court dealing with the matter could accept the account given as being correct.”

The Bankruptcy Division made it clear that for these purposes, the information which an applicant places before the Bankruptcy Division does not have to lead the Bankruptcy Division “to the point where it is able to conclude that the information is correct.”

SUCCESSFUL APPLICATIONS TO SET ASIDE A STATUTORY DEMAND

Best For Less Company Ltd (Commercial Division) v NJC Associates 2024 SCJ 136
Banyantree Capital Advisors Limited v Silver Bank Limited, formerly Known as Banyantree Bank Limited 2024 SCJ 3
Afritex Fishing LTD v Hargraves Glenn Roy 2024 SCJ 47

Best for Less Case

In the Best for Less case, the Bankruptcy Division was satisfied that (i) the applicant established that there was a substantial dispute that a debt was due and, (ii) the dispute was one which would be determined after the Bankruptcy Division heard witnesses.
The Bankruptcy Division confirmed that its function was limited to ascertaining whether there was a substantial dispute between the parties that a debt was due as opposed to determining the dispute itself. The mere assertion that there was a genuine and substantial dispute was not sufficient.

Banyantree Capital Case

In the Banyantree Capital case, the Bankruptcy Division was satisfied that the Banyantree Capital Advisors Limited had satisfied the test of sufficient reliability in respect of the statutory demand which Silver Bank Limited served on them in the sums of GBP 1,111,074 and USD 1,453,009.

In response to the claim under the statutory demand, Banyantree Capital Advisors Limited applied to the Bankruptcy Division to set aside the statutory demand on the grounds, amongst others, that there was a genuine and substantial dispute regarding the existence of the debt which Silver Bank Limited was claiming as due to it. Banyantree Capital argued that despite the entry in their records that the sums claimed represented loans, the reality was that these were investments.

As to Silver Bank Limited, its argument was that (i) the wording of the loan agreements made it clear that the sums due arose under interest-bearing loan agreements and, (ii) these amounts were now due and demandable because Banyantree Capital Advisors Limited were in default under the loan agreements.

In determining whether the was a substantial dispute on whether the debt was due, the Bankruptcy Division focused on the legal test namely, whether there the information placed before the court was sufficiently reliable for the court to accept the version of Banyantree Capital Advisors Limited.

The Bankruptcy Division held that the application passed the test of sufficient reliability because Banyantree had established that there were questions of fact that were disputed substantially and could only be properly determined after a full hearing on the matter.

In reaching its determination, the Bankruptcy Division cited with approval the case of Areff International Ltd v ZSI Trading LLP 2015 SCJ 437 which states that the task of the court in an application is to ascertain the existence, if any, of a substantial, genuine dispute as opposed to making a final assessment of the merits of that dispute. The statutory demand was therefore set aside.

Afritex Case

Finally, in the Afritex case, the Bankruptcy Division was satisfied that the information presented by the applicant disclosed a proper foundation that there was a genuine and substantial dispute as to whether the applicant was liable for the amount claimed.

The Bankruptcy Division found that the applicant had made a detailed factual averment which now had to be put to the test before a court of law.

Overall, the applicant’s assertion had sufficient prima facie plausibility that would require full investigation as to the truth and correctness.

UNSUCCESSFUL APPLICATIONS TO SET ASIDE A STATUTORY DEMAND

The Bankruptcy Division turned down the applications to set aside a statutory demand in the following cases.

Super Oil Ltd v Phil Alain Didier Company Limited (In Liquidation) 2024 SCJ 125
Baumax Rentals Ltd v Phil Alain Didier Company Limited (In Liquidation) 2024 SCJ 124
Solar Transit Africa Ltd v Mauri-China Freezone Development Ltd 2024 SCJ 30 (‘Solar Transit’)
Four H Company Ltd v Phil Alain Didier Company Ltd (in liquidation) 2024 SCJ 8 (‘Four H’)

Super Oil Case & Baumax Case

In the Super Oil Case and the Baumax Case, the Bankruptcy Division applied the recent advice of the Judicial Committee of the Privy Council in Katra Holdings Ltd v Standard Chartered Bank (Mauritius) Ltd 2024 UKPC 8 by which the burden of proof remains on the applicant to demonstrate that (i) there is a genuine and substantial dispute on the existence of the debt being challenged and, (ii) there is a fairly arguable basis upon which the applicant is not liable for the amount claimed.

In both cases, the Bankruptcy Division was satisfied that the applicants had failed to establish that there was a basis on which each applicant could dispute the existence of the debt being due in the statutory demand.

Solar Transit Case

In the Solar Transit case, the sum claimed in the statutory demand was based on a debt settlement agreement entered into by the parties for the rental of warehousing and related services.

However, the distinctiveness of this application to set aside a statutory demand was that sum claimed in the statutory demand also comprised (i) attorney’s commission and (ii) 15% VAT arising under the attorney’s commission over and above the rental of warehousing and related services.

On the faith of the debt settlement agreement, the Bankruptcy Division was satisfied of the following:

there was an acknowledgement of debt in the sum of MUR 855,359.29 which the parties had agreed would be paid in weekly instalments of MUR 75,000 as from 07 February 2020;
there was a monthly rental of MUR 208,878.08 together with interest at 1.5% arising for late payment.
This brought the amount due to MUR 3,941,629.65;
the debt settlement agreement did not record any agreement by the parties on attorney’s commission plus 15% VAT of 15%. Accordingly, this was disallowed.

Four H Case

In the Four H case, the sum claimed was of the order of MUR 130,868.59 and represented a loan which Phil Alain Didier Company Ltd (Respondent) extended to Four H Company Ltd (Applicant). These companies were related as they shared the same directors.

The statutory demand was for the sum of MUR 130,868.59 and represented a loan which the Respondent had advanced to the Applicant. The Respondent justified the quantum claimed on the basis of 2 financial documents namely, (i) the audited financial statements for the year ended 30 June 2019 and, (ii) the statement of financial position as at 07 July 2020.

The Applicant justified its application to set aside the statutory demand on the premise that it was a solvent company and the 2 financial documents submitted by the Respondent were unreliable. In particular, the Applicant argued that the figures in these documents were just book debts for accounting purposes and it was not safe to rely on these the more so there was a discrepancy in the documents as regards the unsecured loan amounts.

Conclusion

In the absence of the equivalent of Chapter 11 proceedings and pre-pack administration under our laws (please refer to our EAlert dated 26 April 2022), the statutory demand remains a powerful tool in the hands of a creditor in cross-border transactions. In continuing to provide certainty and clarity in applications under section 181 of the Insolvency Act to set aside statutory demands, the Bankruptcy Division of the Mauritian Supreme Court plays a vital role in re-assuring investors that the Mauritian international financial centre as one of choice for investors.