Written ByKeith Steven
Managing Director
Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He is the managing director of KSA Group Ltd - a specialist firm of turnaround and licensed insolvency practitioners. Keith was nominated for Turnaround Practitioner of the Year 2014 at the National Insolvency and Rescue Awards in 2014.
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.
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:
Upon ignoring or not responding to the demand, it is likely that the following events will occur:
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?
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.
What is a CVA? | Company Voluntary Arrangements Explained
A CVA or Company Voluntary Arrangement is a legally binding agreement with your company's creditors which allows a proportion of its debts to be paid back over time. 75% of the creditors, by value, who voted need to support the proposal.
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Pre pack administration is an insolvency procedure which allows an insolvent company to sell its assets to a buyer before appointing administrators. It’s a powerful, legal way of selling the business on to a trade buyer or third party.
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Worried Director What Will Happen To Me After Liquidation?
"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director. If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020. Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly. I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim. This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork". It isn't worth the risk. If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP) or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at help@ksagroup.co.uk
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