Challenging a statutory demand

When a company’s debt is still owed and exceeds £750 in value, a creditor has the right to issue the company with a statutory demand.

A statutory demand is a written notice that requests payment of a debt that a company owes to a creditor. It essentially demands payment of an outstanding debt within 21 days of being served. It carries a threat of winding-up, therefore, if your company has been received a statutory demand, it is crucial to act urgently.

The debtor has three main remedies in this case which include:

• Making arrangements to pay all or part of the debt;
• Pay the debt immediately; or
• Dispute the debt either partially or entirely (in which case it may be necessary to make an application to the court for an injunction to restrain the creditor from presenting or advertising a winding-up petition)

The company may only contest a statutory demand on a number of grounds and ordinarily, the court will not permit a winding-up petition to be made against a company in such circumstances, if the following conditions are met:

• The debt alleged in the demand to be owing is genuinely disputed on substantial grounds.
• The English court has no jurisdiction.

If the alleged debt is genuinely disputed, and the creditor does not agree to withdraw the statutory demand on this basis, the debtor has the option to make an application to the court for injunctive relief, namely to restrain the presentation of a winding-up petition. It is essential to act quickly as this must be done within 21 days of having received the demand. Should you fail to respond to the statutory demand within the specified time, the creditor may initiate legal actions such as filing a winding-up petition.

Opposing a winding-up petition

If your company has become aware of a winding-up petition which is opposed on applicable grounds, you should write to the creditor to confirm that the company is challenging the debt and seek legal assistance. You should request that the creditor refrain from proceeding with the winding up petition. If the creditor refuses to do so, the company should either seek an injunction to prevent the winding-up notice from being published in the London Gazette, or inform the creditor that it will oppose the petition at the court hearing on the grounds that they are disputing the debt. Our expert solicitors can guide you and assist with this process at the outset, to ensure that the company’s position is fully protected.

A winding-up petition can be opposed where the grounds to challenge the petition exist, such as:

• The debt alleged in the demand to be owing is genuinely disputed on substantial grounds.
• The company has a right of set-off against the creditor, exceeding the amount claimed in the demand.
• Other circumstances (for example such as jurisdiction, that the company is likely to become insolvent, technical or procedural error or delay).

Our specialist lawyers are experts in defending winding-up petitions. The procedure is file the necessary evidence (usually in the form of a witness statement) in opposition in court, not less than five business days before the date of the hearing of the petition. We are able to fully advise you as to the merits and demerits of your case and can assist the opposition of the winding-up petition and/or negotiating with the creditor. Due to the specific rules and timelines associated with this process, it is advisable to seek immediate expert legal advice, as soon as you become aware of a winding-up petition.

If you are engaged in a commercial dispute over an unpaid debt and have received a statutory demand or you are considering issuing a statutory demand over an unpaid debt owed to you or your company, get in touch with our experienced solicitors, who are best placed to advise you as to your best options.