What are Statutory Demands?
What Statutory Demands are, when & how to use them and what to do if you receive one
Collecting debts can be a major headache for any business. To read some descriptions of the process, you might think that all you have to do if a debtor won't pay and negotiation won't work is to obtain a court judgment against them and, if necessary, send in the bailiffs.
However, that often produces less than satisfactory results. Fortunately, however, if you want to avoid the time and expense of seeking an asset freezing order or legal charge, the law does give creditors a powerful weapon to use against debtors who just won't pay: the statutory demand.
In circumstances where an individual or a business owes money, serving a statutory demand before contemplating court action can facilitate prompt payment. If payment is not forthcoming, a winding up petition can be issued in the High Court - or a bankruptcy petition may be presented in the case of an individual.
It is important to instruct an experienced commercial solicitor in the preparation and service of a statutory demand on a debtor as early as possible. Our expert lawyers are also available to defend a statutory demand.
A statutory demand is a formal legal notice served on the debtor requesting payment of the debt within 21 days. It is a fast, cost-effective method of securing payment from debtors who do not wish to be taken to court, but it can only be used if the debt exceeds £750 on a limited company or £5000 on a private individual.
If the debtor ignores the statutory demand, and the debt is not paid, winding up or bankruptcy proceedings may then be issued in the High Court.
However, statutory demands come with risks: there is little to be gained from serving a statutory demand if the debtor does not have the funds to settle the debt, or if they have potential grounds to defend themselves.
Setting aside a statutory demand
If the debtor’s application is successful you are highly likely to receive a costs order against you – and this could cost more than the amount of the debt itself. This means a lot of consideration should be given as to whether or not a statutory demand should be served, and if proceedings should be issued instead.
Winding up petition
If the debtor does not have the funds to pay the debt, or the debtor refuses to pay even after a statutory demand is served, a winding up petition can be issued in the High Court (in the case of a company) - or a bankruptcy petition can be presented (in the case of an individual).
The debtor’s assets will be sold and the net sale proceeds used to pay off the debts in order of priority as set out in insolvency law – with secured creditors taking priority. This means you may recover little if any of the debt owed to you.
What is a Statutory Demand for Payment?
A statutory demand is a legal demand for payment in statutory form and can be issued in regard to any debt that is overdue. However, statutory demands are normally served after a court judgment is obtained, because there are many defences against a claim where the debt has not been sanctioned by a judgment. Once served, the debtor has 21 days to pay the debt in full, reach an agreement over payment or face insolvency proceedings, or 18 days to apply to the court to have it set aside.
Once a statutory demand has been issued, the pressure on the debtor to pay is intensified significantly, as failure to deal with the statutory demand can lead to a bankruptcy order against an individual or an order to wind up the company where the debtor is a limited company.
When Should You Use a Statutory Demand?
Normally, a statutory demand will be issued after normal debt collection procedures have failed and it is preferable to obtain a judgment, so the debt itself is not in dispute. A statutory demand should always be issued in consultation with a solicitor, as there are strict rules regarding service, time limits for serving your claim, and the correct form must be used.
The debt should be for a sum sufficient to warrant the commencement of bankruptcy proceedings, which was raised to £5,000 from 1 October 2015.
What Should You Do if You Receive a Statutory Demand?
If you have been served with a statutory demand for payment, contact us immediately: the more time available to assemble the evidence needed to contest the demand or to achieve a negotiated settlement with the claimant the better.
It is important to remember that the mere issue of a statutory demand does not prove that the debt claimed is due or that the statutory demand has been properly served, so there may be immediate grounds to have it set aside. It is never advisable to delay as once an application for a winding-up or bankruptcy order has been made, the stakes rise a great deal.
In 2014, a content creation client of ours was having serious problems being paid after we helped them win a court case against a company for breach of copyright. The losers simply refused to pay. A judgment of the court is a judgment debt, so there was no need to go to court again.
With an unsatisfied judgment debt in hand, we sent the debtor a statutory demand, on behalf of our client, indicating that we would start winding-up proceedings against them if they failed to settle their debt in full within 21 days. Although it was necessary to remind them as the date approached, payment in full was received before the 21 day time limit.
How Selachii Can Help
If you are having problems collecting money owed to you, contact us for advice. We can help you make sure that your unwilling debtors pay up, that your contract terms protect you fully and that any unwarranted demands from creditors are fended off.
Selachii is a dynamic boutique law firm based in Notting Hill, London. We put the best interests of our clients at the heart of everything we do. We work with both businesses and private individuals, giving them legal advice and support which is unique to them and their situation.
We don’t believe in simply handing out one-size-fits-all solutions to problems. We will focus on your specific circumstances before working out the best and most cost-effective way of helping you achieve your aims.