A statutory demand is a formal means of demanding a debt. If the debt is not paid or secured (or sufficiently reduced) or the court does not set aside the demand, then a creditor will normally be able to present a bankruptcy or winding up petition and rely on the demand as evidence that the debtor is unable to pay their debts as they fall due.
What is a statutory demand?
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 Debtor’). The debt must usually be less than six years old and the creditor must not hold any security against it.
After an individual or a company is served with a statutory demand they have 21 days to either pay the debt or reach an agreement to pay or provide security. If the Debtor does not respond to a statutory demand, the Creditor can petition to bankrupt the Debtor (if an individual) or to wind up the Debtor (if a company), provided the debt is for more than £5,000 for an individual or £750 for a company.
Statutory demand – the form and service
The Creditor (or more normally their solicitor) will need to fill in a prescribed form and then arrange for it to be served on the Debtor that owes them money. This sets out the particulars of the debt and explains what the Debtor must do. A creditor can serve a statutory demand in several ways::
- a statutory demand can be handed to the individual owing the money (normally by a process server/agent)
- a statutory demand can be left at the registered office of the company 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)
- substituted service may be possible where the demand cannot be personally served
The rules of service can be complicated and it is generally advisable to seek legal advice/representation to ensure the statutory demand and service are compliant with the rules.
What happens next?
After a creditor serves a statutory demand, it/they need(s) to wait for 21 days before it/they can commence insolvency proceedings. If the Debtor does not pay the debt or the demand is not set aside or withdrawn, the Creditor can then commence insolvency proceedings (i.e. present a bankruptcy/winding up petition to the court).
Because insolvency is a form of class action, careful consideration will need to be given as to the Debtor’s likely response, asset position and the existence of any other Creditors. If a Debtor becomes insolvent then their/its assets are managed by the Official Receiver, liquidator or trustee-in-bankruptcy. Depending on the value of the Debtor’s estate, assets will be distributed between Creditors after the liquidator/trustee’s costs. Assets are not always distributed evenly. For example, if property is charged then the interest of the party with the charge will normally take priority.
If a Debtor has something to lose the threat of insolvency proceedings is often an effective way of obtaining payment.
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 the court identified in the demand. If a statutory demand is served on a company it can apply for an injunction to restrain a Creditor from winding up the company.
A Debtor would need to apply to challenge the statutory demand within either 18 days of being served (if they were in the UK when they got the statutory demand) or 21 to 34 days (if they were in another country, depending on the 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.
If a Creditor unreasonably refuses to withdraw a statutory demand in respect of a debt that is reasonably disputed, the court may award the Debtor their costs of having the demand set aside.
Finally, in some circumstances, the service of a statutory demand before issuing a petition is not compulsory (for instance where the outstanding debt is confirmed in a court order and execution of the judgment has been unsuccessful). Nevertheless, it will often still be preferable to give the Debtor a final opportunity to pay by arranging to serve a statutory demand, as the failure to respond to the same or make payment is evidence that the Debtor is unable to pay their debts as they fall due, which is a pre-requisite to obtaining a bankruptcy or winding-up order.
Advice on statutory demand or insolvency proceedings – contact our solicitors
You should contact one of our team to discuss your case and arrange a preliminary consultation. At the consultation, we will advise you on the proceedings, talk through the relevant practical and legal issues, and set out your options. We will review relevant documentation ahead of the consultation. The consultation will help you understand your position and allow you to make an informed decision about what action to take.
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