Statutory Demands and Insolvency Proceedings
A statutory demand is a formal means of demanding a debt which acts as the formal institution of insolvency proceedings.
Statutory Demand – what is it?
A Statutory Demand can be made by anyone who is owed money [‘the Creditor’] where there is no reasonable dispute about the debt. It can be made to demand payment from an individual or a company. The debt must usually be less than 6 years old and the creditor must not hold any security against it.
When an individual or a company receives a statutory demand [‘the Debtor’] they have 21 days to either pay the debt or reach an agreement to pay. If the Debtor does not respond to a statutory demand, the Creditor can petition to bankrupt the Debtor or to wind up the company.
Statutory Demand – form
The Creditor will need to fill in the form and serve it on the individual or the company that owes them money. There are several ways of service:
- a statutory demand can be given to the individual owing the money
- a statutory demand can be left at the registered office of the company or partnership that owes money (or the main place of business if they do not have a registered office)
- a statutory demand can be given to the company’s director, company secretary, manager or principal officer)
- a statutory demand can be served by a process server
What happens next?
After a statutory demand is served a creditor needs to wait for 21 days. If the debtor does not pay the debt or agree to the statutory demand, the creditor can start bankruptcy proceedings against individuals who owe more than £5,000 or more or wind up a company that owes £750 or more.
In order to apply to the court to wind up a company the creditor would need to show the company owes more than £750 and be able to prove the company cannot pay. If the application is successful the company’s assets are sold, any legal disputes are settled, the company collects money it is owed and funds are paid to the creditors.
Can a debtor challenge a statutory demand?
A debtor can apply to challenge a statutory demand and apply to set aside. This requires an application to court [in Form IAA] named on the demand. If a statutory demand was served on a company they could apply to stop creditors from winding up their company.
A debtor would need to apply to challenge the statutory demand within either 18 days (if they were in the UK when they got the statutory demand) or 21 to 34 days (if they were in another country). They would usually hear from the court within 10 working days of making the application. If the court dismisses the application then the creditor can petition for the debtor’s bankruptcy.