Have you been threatened by a statutory demand?
A statutory demand is a legal method of recovering a debt and is ‘served’ on an individual or a company by a solicitor acting on behalf of a 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).
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.
We have received a statutory demand now what?
It should be taken extremely seriously and you must act quickly. It will cost a creditor some £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:
- The debt must not be in dispute.
- 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.
- If the person owing the debt is a limited company or LLP, then the minimum debt owed is still £750.
- The debt must not be subject to a voluntary arrangement or is being paid off instalments under a debt relief order (for individuals).
- The notice must be served on the company's registered address.
- The creditor must not have security over the assets of the debtor, that is valued at more than the debt.
- 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
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.
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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.