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What is a Statutory Demand?

16 July 2018

What is a Statutory Demand

A statutory demand is a written claim for a debt against a company or individual, by a solicitor, acting on behalf of one or more of their creditors. It's a method used to recover a serious debt, and is often the first step before issuing a winding up petition (for a company), or bankruptcy (for an individual). If your debt is over 6 years old, a statutory demand is unlikely, but you can get advise instead. 

A statutory demand must be taken seriously. It costs a creditor £200-£500 to issue a demand via a solicitor, so you can be sure that they are intent on recovering their money.

Failure to pay at this stage could result in compulsory liquidation, and the end of your company.

How does it work?

Most statutory demands follow a county court judgement. This means the debt has been proven in a court of law, and the creditors are entitled to their money.

However, the creditor must meet these criteria if a statutory demand is to be issued:

  • The debt must not be in dispute
  • The debt from the company must be £750 or more
  • The debt is not subject to arrangement, or being paid off in 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 itself
  • The creditor must not owe money to the debtor as otherwise there is a case for a counterclaim or set-off

If all these terms are met, the creditor(s) will task a solicitor with issuing a statutory demand on their behalf.

Included in the statutory demand will be the contact details for both the person you can organise payment with, and the court contact with whom you can dispute the debt.

Within 18 days, the amount claimed should be settled or contested. If these options are not taken, the amount claimed should be paid in full at 21 days.

Failure to pay or reach a settlement serves as evidence that the company is insolvent. This means that creditors can legally wind up your company and force it into compulsory liquidation.

I’ve been issued with a statutory demand: What can I do?

First, you should make sure that the creditor's claim is valid. If not, you can contest the demand by contacting the court and asking for an injunction to be made to stop the proceedings. If any of the following apply, you have a chance for a successful contesting:

  • The creditor owes you money
  • The demand states a disputable amount or is less than £750
  • The demand was done in error
  • The creditor has security which exceeds or equals the debt amount
  • You pay on instalments and have not revoked on any payments
  • The creditor used the incorrect forms/method to serve the demand

You can also try setting aside a statutory demand – basically, having it cancelled by the court. To do this, you must check the legitimacy of the specified debt, and whether the required legal procedures have been followed by the sender. There must be a genuine dispute with the claim, and you must use the prescribed forms to challenge the demand. If the court accepts your challenge, a court hearing will be arranged for discussion of the matter. If your application is a success, the demand will be revoked and the creditor will be liable for all court costs.

If the demand is valid and you are able, you should pay the full sum as soon as you can (within the 21-day period). If not, see if you can come to an arrangement with the creditor issuing the claim. If you cannot pay within the 21-day window, avoid a winding up petition by going into a Company Voluntary Arrangement (CVA). This is an effective restructuring method that gives a company breathing space.

As long as 75% of creditors agree to the CVA, the unsecured creditors are bound to accept being paid a proportion of the debt, over a 3-5 year period. A CVA is, perhaps, the best way to ensure that your company isn’t forced into liquidation.

21 days after a statutory demand has been serviced, there is potential for a winding up petition. It is vital to ensure you act without delay. If a winding up petition is issued, and becomes advertised, devastating effects can occur for the company as bank accounts may become frozen. 

All-in-all, the only way to know which is the best option for your business is by asking an experienced financial adviser to appraise your situation and offer advice. Call us on 0800 9700 539.

Categories: Worried Director What Will Happen To Me After Liquidation?

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