What is a Statutory Demand

 

A statutory demand is defined by parts 7.2 and 7.3 of the Insolvency Rules 2016, as a written notice that requests payment of an outstanding debt. It demands payment of a debt within 21 days of being served. More severe legal actions can follow this step if the debtor does not pay the debt or come to an arrangement that is acceptable to a creditor, such as winding-up proceedings being brought against a debtor company or bankruptcy proceedings in the case of an individual. It is therefore essential to understand the key features of a statutory demand.

 

Issuing a statutory demand

 

If you are owed an unliquidated debt of more than £750 by a company (or more than £5,000 in the case of an individual) and you have exhausted alternative avenues to receive payment, a statutory demand can be an impactful method of extracting sums owed to you from the defaulting party.

 

It should be noted that a statutory demand may be relied upon in further legal proceedings and should:

• give clear financial details of the claim as well as interest calculated to the date of the demand;
• be served on the debtor personally (through a process server) or via post; and
• set out what the debtor must do to either comply with or set aside the statutory demand and the possible consequences if they take no action.

It is also important that a debtor follows the correct rules of service.

 

Responding to a statutory demand

 

In the case of company debtors, action must be taken within 21 days of service of the statutory demand, to either comply with it or to reach a negotiated settlement in relation to the outstanding debt. However, if the debt set out as owing in the statutory demand is genuinely disputed on substantial grounds, a debtor should make an immediate application to the court to restrain the creditor from presenting and/or advertising a winding-up petition against the company.

 

In the case of an individual, it is imperative that you act promptly and within 18 days of service of the demand to avoid the creditor bankrupting you. You may apply to set aside the demand on grounds such as procedural errors or where there is a genuine dispute in relation to the debt. If you apply to set aside the demand outside the mandated time period, your application will only be listed at the court’s discretion so you must make sure to act within the specified time.

 

In both cases, the court will assess the merits of the respective applications and exercise its discretion as to whether the injunction or ‘set-aside’ application should be granted.

 

Whether you intend to issue a statutory demand or if you have been served with one, it is recommended that you take expert legal advice at the earliest opportunity to ensure that your respective position is fully protected.

 

Always seek immediate legal advice

 

If you are seeking payment of an outstanding debt from a company or an individual, it is important to ensure that you have correctly followed the rules and that the demand meets all relevant legal requirements, so as to avoid the risk of an invalidated demand. If the demand is not correctly handled at the outset of the process, it can result in negative future costs consequences and therefore must be carefully considered.

Equally, due to the severe implications that can ensue as a result of receiving a statutory demand, it is highly recommended to seek expert legal advice in the first instance as this can harm the reputation and financial standing of an individual or company debtor. You should consult with legal professionals as soon as possible, to explore your possible options and/or defences.

 

If you are a debtor or creditor and have any questions about dealing with statutory demands, please contact us for detailed expert advice and guidance on your specific case.