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What is a statutory demand

8 August 2018

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:

  1. The debt must not be in dispute.
  2. The debt must be more than £5000 (as of 1st October 2015).
  3. The debt is not subject to an arrangement or is being paid off installments under a debt relief order (for individuals)
  4. The notice must be served on the company's registered address.
  5. The creditor must not have security over the assets of the debtor that is valued at more than the debt
  6. 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 includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions.  A new 20 day moratorium for distressed businesses has also been introduced. 

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