Statutory Demands

What is a Statutory Demand and how to deal with them

 


What is a Statutory Demand?

 

A Statutory Demand is a formal demand, that is served on a company, and requests that payment of an outstanding debt is made within 21 days. 

In order to be effective that demand must be made in the prescribed form and it must also be properly served on a Company, usually at either its registered office or trading premises.  More often than not a process server is engaged by the creditor to personally serve the demand on the Company, and a formal statement by the process server is then made stating when and where the demand was served.

That statement can then be used as evidence in any later court proceedings to demonstrate that the Statutory Demand was properly served.

The demand must also clearly set out the amount that is owed, and sufficient details regarding that debt must be included so that the recipient can clearly understand what is owed.

 

The Implications of a Statutory Demand

The implications of an unsatisfied Statutory Demand are serious, because if the debt is over £750, and remains outstanding for 21 days, then under Section 123 (1) (a) of The Insolvency Act 1986 the Company would be consider insolvent because it was unable to pay its debt as and when they fell due.

If this is the case then the creditor would be able to issue a Winding Up Petition against the Company, and further details in respect of Winding Up Petitions can be found here.

At the Winding Up Hearing the Courts are likely to take the view that an unsatisfied Statutory Demand was sufficient evidence of insolvency and therefore a Winding Up Order could be made against the Company, and further details regarding Winding Up Orders can be found here.

 

What Can You Do if the Debt is Disputed?

Unlike personal insolvency it is not possible to apply to Court to set aside the Statutory Demand if the debt is disputed, and you must instead write to the creditor.

The issuing of a Statutory Demand is not supposed to be used as a debt collection tool, particularly if there is an ongoing dispute regarding that debt.  If there is an ongoing issue, issuing a Statutory Demand would be considered an abuse of process.

Purnells would normally recommend writing to the creditor to warn them that the debt is disputed, and clearly setting out the reasons why.  It should be highlighted to the creditor that disputed debts should be dealt with through the County Courts (subject to certain limits) and that using a Statutory Demand in this fashion is an abuse of process that will be brought to the attention of the Court.

The creditor should be invited to withdraw the demand and agree not to issue a petition.  If the creditor refuses to agree to do this, then an injunction may need to issued against the creditor to prevent any petition being advertised, which could lead to the Company’s bank account being frozen and therefore being unable to continue to trade.

Accordingly if the debt is disputed immediate insolvency and legal advice should be sought, otherwise the Company could find itself dealing with a Winding Up Petition and potentially a Winding Up Order.                                                                                                                                                                                                                                      

What Can You Do if the Debt is Not Disputed?

If the debt is not disputed then the first thing that you could do would be pay the debt.  If funds to settle the debt are not immediately available it may be possible to negotiate with the creditor to pay the debt over a period of time.

If it is not possible to settle the debt, or come to an agreement with the creditor, or if there is other creditor pressure, then formal insolvency action may need to be taken which could include:

1.    Administration

2.    Creditors Voluntary Liquidation

3.    Company Voluntary Arrangement

Further information on the above processes can be found by clicking on the above links.  However the best option would be to take advice from a Licensed Insolvency Practitioner.

If you wish to discuss Statutory Demands further, or wish to have a free meeting to discuss your company’s affairs please contact Chris Parkman on 01305 458 383 or by email at chris@purnells.co.uk and he would be happy to provide you with whatever advice you need.