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What is a Statutory Demand?

Written by Keith Steven Managing Director 11 March 2021

What is a Statutory Demand

Have you been threatened by a statutory demand?

First things first, let us understand the term:

In simple terms, a statutory demand is a written warning a creditor serves on an individual or company, requesting debt payment or an alternative and acceptable arrangement to be made. It is a legal means of collecting debt. Solicitors will issue the warning on behalf of the creditor. It is often the first step prior to the issuing of a winding up petition (for a company) or bankruptcy petition (for an individual), meaning the tool has great power. It is a court free method, bringing ease in using the tool and providing justification as to why HMRC use it.

Note that it is not necessary to issue a stat' demand, as they’re often called, to initiate a winding up petition against a company, as the debt just has to be undisputed and over £750. Often creditors are advised to miss out the stat demand step. Other criteria to consider when issuing a statutory demand is that the creditor can prove the demand has been served under the correct means, the money due must not already be a part of a payment arrangement and your creditor must not have security over assets to the value of or exceeding the debt.

We have received a statutory demand, now what?

It should be taken extremely seriously and you must act quickly. It will cost a creditor between £200-£600 to issue a statutory demand via a solicitor so creditors are usually intent on recovering their money. A statutory demand is more usually issued, in the case of companies, after the creditor has issued a county court summons and a county court judgment has been made. For more information on other actions, please look at our creditors legal actions page.

BUT if you do not respond to the statutory demand or have no defence then a winding up petition can be issued just 21 days after the service of a statutory demand. Or if this was a personal debt a bankruptcy petition may be issued if all conditions below are met and the debt is not paid.

Before issuing a statutory demand, the creditor needs to satisfy some requirements:

  1. The debt must not be in dispute.
  2. If the person owing the debt is a sole trader, then the debt owed must be more than £5,000. Previously this threshold was £750. 
  3. If the person owing the debt is a limited company or LLP, then the minimum debt owed is still £750.
  4. The debt must not be subject to a voluntary arrangement or is being paid off instalments under a debt relief order (for individuals).
  5. The notice must be served on the company's registered address.
  6. The creditor must not have security over the assets of the debtor, that is valued at more than the debt.
  7. The creditor must not owe money to the debtor as otherwise there will may well be a case for a counterclaim or what is known as set off

Upon ignoring or not responding to the demand, it is likely that the following events will occur:

  • Creditor serves a winding up petition against the company based on non-payment of the statutory demand
  • Winding up petition is published in the London Gazette
  • Banks freeze all related business accounts
  • Creditors are alerted of this news and may take their own legal action
  • Winding up order issued after a seven day period. This issuing leads to the liquidation of company assets to meet creditor demands
  • Business will cease to exist following liquidation

Can I have the statutory demand set aside?

In certain cases, yes. If you dispute the statutory demand you can write to the court where they can cancel it, so long there are legitimate, justified reasons. For example, is the debt amount correct? Were the required legal procedures followed? Are you owed money by the creditor?

Defending a statutory demand: what can we do to defend our company against the statutory demand?

As a statutory demand is often served after a county court judgment (CCJ), the debt is usually “proven” and it is essential that some arrangement is negotiated with the creditor if you CAN pay.  If you as business sole trader know you can pay, or if acting as a company director who knows the business can pay, it is best to pay or seek time to pay.

If the debt cannot be paid and the company is insolvent under the 3 insolvency tests then it is possible to restructure the debt with an informal time to pay arrangement  If things are looking really difficult and the company has many more creditors, then we suggest considering using a company voluntary arrangement (CVA). Once successfully approved, a CVA can avoid a winding up petition being issued.

A CVA is an effective restructuring method which gives the business some breathing space. If 75% of the creditors agree, the unsecured creditors are bound by a CVA to accept a payment of a proportion of the debt over a 3-5 year period.

Remember, a winding up petition can be issued just 21 days after the service of a statutory demand. It is therefore essential to ACT without delay. A winding up petition once advertised can have a devastating effect on the company as the bank account could be frozen.

Likewise, if you are a sole trader then a statutory demand can have a devastating effect on your livelihood IF it is not dealt with. Bear this in mind, the sooner you get help the more time we have to help you. Do not wait until a petition is issued, as then it may be too late.

Call and talk to us as we can help! Call us on 0800 9700 539.

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