A statutory demand is a 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 (for an individual).
It should be taken seriously. It will cost a creditor some £300-£600 to issue a demand via a solicitor so they are usually intent on recovering their money. A statutory demand is more usually in the case of companies issued after a county court judgement has been made. For more information on other actions, please look at our creditors legal actions page.
However, the creditor needs to satisfy some requirements:
- The debt must not be in dispute.
- The debt must be more than £5000 (as of 1st October 2015).
- The debt is not subject to an arrangement or is being paid off installments 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 be a case for counterclaim or set off.
What can we do to defend our company against the statutory demand?
As a statutory demand is often served after a county court judgement (CCJ), the debt is proven and it is essential that some arrangement is negotiated with the creditor if you can pay. It is possible to avoid a winding up petition being issued by going into a CVA or company voluntary arrangement. It 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. BUT 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.
Bear in mind, you can get a winding up petition adjourned to buy some time so please talk to us as we can help! Call us on 0800 9700 539.
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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.