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What are the consequences of overstating the amount due in a demand letter?

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22/10/2014

The Irish Supreme Court has ruled [1] that a letter of demand that overstates the amount due from the borrower, is nonetheless a valid letter of demand. Borrowers in Ireland who subject statements of accrued interest to a detailed analysis in the hope of finding that this has been overstated are therefore likely to be wasting their time.

This decision is in line with the leading English authority on the subject, County Leasing Limited v East [2], a case from 2007, which established that a demand made for payment of a debt will be valid even if the amount demanded is more than the sum due, provided that the lender has not refused an offer to pay the amount due. English authorities like this are not binding in Ireland but do have persuasive authority, so the judgment of the Irish Supreme Court is not a surprising one.

In English law, the position may be different where the demand is served pursuant to statute. In the case of bankruptcy, a 1908 case [3] established that a statutory demand must not overstate the amount due from the debtor, even by a very small amount. For liquidation, the current legal position appears to be that an excessive demand not invalidate the winding-up petition; Re A Company (No 003729 of 1982) [4] suggested that it would not be fatal to a petition if the petitioner, without serious argument, alleged a debt of a specified sum but inadvertently specified the wrong sum in the statutory demand.

It follows from the above that creditors serving a demand pursuant to a contract, such as a loan agreement, will not be adversely prejudiced if they overstate the amount due – although they should, of course, strive to get the amount right.

In relation to statutory demands grounding a bankruptcy petition, an overstated amount of even a negligible sum will invalidate the petition.

In relation to statutory demands grounding a winding-up petition, the position appears to that an overstated amount will not invalidate the petition where there is an undisputed debt due from the debtor for more than the statutory minimum and there is no set-off against that undisputed debt which could bring it below the statutory minimum.

[1] Flynn v National Asset Loan Management Ltd [2014] 7 JIC 2505
[2] [2007] EWHC 2907 (QB)
[3] Debtor (No 478) of 1908 [1908] 2 KB 684
[4] [1984] 1 WLR 1090