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Statutory demands are an effective method to obtain payment for a creditor, but have devastating consequences for a debtor.

Important things you should know about statutory demands

There are time limits to respond to the service of a demand which should be dealt with immediately. Depending on whether you issue a statutory demand or receive one, experienced and prompt legal advice should be sought.

A STATUTORY DEMAND IS SOMETHING NOT TO IGNORE – THERE CAN BE DEVASTATING CONSEQUENCES IF IT IS NOT DEALT WITH

What is a statutory demand?

A statutory demand is notice from a creditor that if payment demanded is not forthcoming following the service of the demand, court proceedings can follow with the result that a debtor’s business can be wound up following the subsequent presentation of a winding up petition to the court, or if you are an individual, the presentation of a bankruptcy petition to the court.

In order to serve a statutory demand, the debt owed to the creditor must be at least £750.00 and above for a company and £5,000.00 or above for an individual, and the debt must not be disputed, or a payment plan already in place and being adhered to.

Statutory demands can be used as evidence to the courts that a debtor is unable to pay their debts as they fall due.

How to issue a statutory demand

A creditor can initially issue a statutory demand without going through the courts or if a county court judgment order has already been obtained, a statutory demand can be used to enforce the same.

Within the demand, costs and interest can be claimed in accordance with the Late Payment of Commercial Debts (Interest) Act 1998 and Late Payment of Commercial Debts Regulations 2013, unless relevant clauses are contained within any terms of business etc. This firm’s Debt Recovery charging structure can be found by clicking on the link.

The relevant form must be completed correctly, if not, then the demand can be challenged by the debtor if the debt is disputed; if it has been served incorrectly or there are inaccuracies; and there can be cost consequences to the petitioning creditor!

Once the form has been completed, it is advisable to have the same personally served by a process server, there can therefore be no doubt that the demand has been brought to the debtor’s attention.

However, a copy of the demand can also be sent by post or email, keeping copies as evidence of service eg. proof of posting. A process server will send you a certificate of service.
Service upon a company must be at the registered office and brought to the attention of the company’s directors or other company officer.

At this point it is wise to immediately make contact with either the creditor or their legal advisors to prevent any petition being applied for, as negotiations can be undertaken to reach a settlement, if necessary.

However, an application can be made to the court by the debtor for an injunction (in the event of a company) or to set-aside the demand (in the event of an individual) to prevent any subsequent petition being presented to the court.

What happens after service of the statutory demand?

Once the demand has been served, the debtor will have 21 days (company) or 18 days (individual) to either make payment, agree to a payment plan or challenge the same.

If payment is made or agreement reached, then no further action will be taken, save for agreement to withdraw the statutory demand (or petition if one has been presented to the court).

However, if there is no response/payment, the creditor can seek to petition for the debtor company to be wound up or the individual made bankrupt with all relevant cost consequences. Failure to pay after service of the relevant petition can result in the debtor’s (company) financial position being made public following notice in The London Gazette and the company’s bank account(s) frozen. At this point, other creditors can come forward and support and/or take carriage of the petition in order to protect their position. At that stage it is not just a matter of negotiating with the petitioning creditor, but all creditors who support the petition.

It therefore can be seen that the issue of a statutory demand is an efficient way for a creditor to obtain payment, but if you should receive a demand, the same should be treated as being a serious attempt by the creditor to recover payment.

The above is a brief synopsis, but for further information on the issue or receiving of a statutory demand (or any other debt recovery advice) please do not hesitate to contact Paris Smith LLP’s specialist Commercial Debt Recovery team.

This blog is Part 4 in a series of blogs on debt collection. You can read the others by clicking on the links below: