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Contractor Loan Demands- What should I do?

13th January, 2021

Contractor Loan Demands- What should I do?

Following a substantial increase over the last 24 months of third parties attempting to recall purported loans made to contractors via their umbrella, we explore what you can do to protect yourself from a loan demand.


Having spoken to many thousands of contractors who have, in the past, utilised a contractor loan umbrella, we have been afforded the opportunity to understand the motivation behind participation in these schemes.

From the traditional (reduction of administrative burden) to the more forced (because my agency told me I needed to use it in order to be put forward for the job) the reasons are vast.

Not once, however, have we met a contractor who knowingly entered an arrangement with the intention of creating a legally binding agreement to pay away all of their earnings to an unknown third party for nothing in return.

Whilst this may seem absurd, we have started to see third parties attempt enforcement for outstanding loans making this a reality. This has led the Isle of Man Financial Services Authority to issue a notice warning recipients of demands of fraud. (see here).

So, what can Contractors do to protect themselves from this ever-increasing practice?

Types of Demand

Initially, it is important to retain perspective. Receipt of a demand of any nature is, of course, unwelcome. However, try to keep in mind the motivation. Most demands are accompanied by an offer to settle for a vastly reduced sum- a good indication of the claimed creditors view on the arrangement and their chances of enforcement.

Typically, there are three types of demand. Each individual demand type will carry its own unique set of challenges. Whilst too extensive to detail here, the following may help you in the initial stages.

  • Demand from a Liquidator– The first will arise where the loan was made directly from your employer, which has subsequently gone into liquidation. The demand will be from the liquidator appointed to the case. It will be important to explore company accounts to see if the loan was assigned to a third party before the liquidation. Where this can be shown, any purported loan is not an asset of the liquidation and therefore not recoverable by the liquidator.
  • Demand from a Trust- This will arise where your employer paid a sum into a trust of which you were a beneficiary. Trustees making the demand have fiduciary responsibilities to protect you as a beneficiary. Suggestion that they are compromising this by raising a demand against you may be a good opening defence.
  • Demand from an unconnected third party- This will arise where, following the two examples above, the asset (debt book) has been sold or assigned to a third party. Arguments here are explored more expansively, below.

Developing Arguments

In almost all instances, assurances were given by the scheme operator that due to the loan being housed within a trust, you would be protected from an immediate demand for repayment.

These assurances will be a useful starting point to your defence.

When assessing the legitimacy of a loan agreement a Judge will always explore the facts in line with the supporting documentation. Where it can be shown that neither party to the transaction had any real intent to enter a legally binding agreement, it may be concluded that the agreement is unenforceable or ‘void ab initio’ (void from the beginning).

Summary argument 1: Was there real intent of both parties to enter a legally binding agreement?

Secondly, it is incumbent on the company seeking to enforce the purported debt to prove that they own the debt, that the debt exists and that you are the correct debtor. This is called the burden of proof.

Absence of evidence supporting the above shows that the purported creditor cannot discharge the burden of proof, rendering their claim unenforceable.

Summary argument 2- Can the purported creditor evidence their claims properly?

Whilst not an exhaustive list of defences, of which there are many, the above can be a good starting place for challenge where appropriate facts are in place.

If you’re not sure whether they are applicable feel free to call us. We’ll happily talk through your case without charge.

Statutory Demands

A statutory demand is a tool favoured by the purported creditors in this case. This is because it can be issued for the price of a stamp, after downloading a form from the internet. Carrying with it a threat of bankruptcy, the fear it provokes is often the intended reaction.

Despite this, a statutory demand is not a tool to be used for debt recovery despite commonly incorrectly used as such. Instead, its purpose is for enforcing an undisputed debt as a precursor to bankruptcy. The key word here is undisputed.

If the matter is disputed in advance of a statutory demand, one cannot be issued. As a result, we would always ensure that where an initial demand is received a challenge is issued, being cautious not to offer personal information, in accordance with the IOM FSA warning above. That protective measure can ensure a statutory demand is restricted thereby saving considerable costs of defence further down the line, including an appearance at your local bankruptcy court.

If you have received a statutory demand but have not yet disputed the matter you will need to take some advice. Your next steps will be fact dependant but are tight on time. Try to leave yourself as much time as possible by speaking with an expert early on.

What Are WTT doing?

As above, there are a myriad of substantive arguments which arise on both a case-by-case basis and in a more general capacity. WTT Legal and our team of litigators have developed in house arguments in a number of scenarios seen to date, which for obvious reasons cannot be detailed here.

We have built substantial groups of defendants, who are sharing evidence, testimony and support against the demands.

We will always talk you through your options extensively for no charge.


Whilst the initial shock of a demand is unwelcome, it is essential to remain objective, take advice and react in a rational and considered way. Employing the right arguments at the right time is paramount, as is ensuring a valid dispute with strong grounds is issued early to in defence of a statutory demand.

As always, out team of experts will be very happy to speak with you and give you some initial, complementary guidance. It is likely we already represent people in the exact same position as you, so it is important you remember you are not alone, defences exist, and you have support.

More resource: https://wttconsulting.co.uk/%ef%bb%bfwtt-statement-on-iq-consultants-iq-contracts-garraway-ltd-darwin-and-sanzar/

Deckquity Partners Associate EBT ECS Inte Vesperrnational Trustees

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