If you have received a statutory demand, it can be very concerning – particularly if you’re not sure what this legal term means and what the consequences of this may be. Sometimes just being able to cut through all the legal jargon can feel impossible.
Ultimately, you need to understand it in order to take action, as not doing anything will never bode well, and can only lead to it becoming a bigger problem. Here’s our essential jargon-free guide for you to use in order to understand what a statutory demand is and what steps need to be taken:
– What is a statutory demand?
– Is a statutory demand the only option to recover debt?
– Why would you serve a statutory demand on a company?
– What are the rules for serving a statutory demand and how do you serve one?
– Do I need proof of service?
– What types of company can you serve a statutory demand on?
– Can I serve a statutory demand if the debtor is out of the jurisdiction?
– How to serve a statutory demand in a foreign currency?
– Can I serve a statutory demand for unliquidated/disputed debts?
– How to use a statutory demand if the debt is secured
– Can I serve a statutory demand on a surety or guarantor?
– Can I use a statutory demand on a statute barred debt?
– What happens if there’s a mistake in a statutory demand?
– What happens after a statutory demand is served and what are the time limits?
– What happens if the debtor pays or settles the debt?
– What happens if there is a genuine dispute or counterclaim?
– How individuals can apply to set the debt aside
– How a company can apply for an injunction to prevent winding-up proceedings
– What happens if a company does nothing?
– How to present a bankruptcy petition
What is a statutory demand?
A statutory demand is when a creditor makes a formal demand on you for payment of a debt that is at least £5,000 or higher (as an individual) or £750 (as a business). A creditor is required to send you a statutory demand prior to looking to make you bankrupt. Within this demand, they are required to include both your details and theirs, as well as information about the debt that is being claimed against.
Once received, you will have between 18 or 34 days from the date that the demand is served on you in order to reply (depending on whether you were in the UK or abroad at the time you received the statutory demand. If you were in the UK, it is 18 days. If you were abroad it is between 21 and 34 days, depending on the country you were in). Responding should be treated as an urgent priority.
If you are issued with a statutory demand, your options are to pay the sum that is being demanded, try and negotiate a deferred or reduced payment, seek an injunction to prevent a bankruptcy order or winding up petition from being issued, wait for this to occur and then challenge the petition, or do nothing (the latter option being highly unadvisable).
Is a statutory demand the only option to recover debt?
If you are a creditor looking to issue a statutory demand on a debtor, it is worth knowing that this is not the only option in order to recover the debt. If you have already got a court order stating that the money must be paid, then you can simply ask the court to enforce it. You can also present a petition for bankruptcy without serving a statutory demand if the debt for bankruptcy is equal to or exceeds £750 and it has not been possible for enforcement to recover some or all of the amount due.
Why would you serve a statutory demand on a company?
Where there is a debt outstanding and it is likely not to be paid by a company in debt, a statutory demand can be used by a creditor to support a winding petition on the grounds that the debtor company is unable to pay its debts.
Section 123 of the Insolvency Act 1986 defines the circumstances in which a company is unable to pay its debts:
- If a creditor to whom the company is indebted in a sum exceeding £750 and for three weeks the company has failed to pay the debt or failed to agree on a payment arrangement with the creditor
- A judgement or court order in favour of a creditor is returned unsatisfied in whole or party within England and Wales
- The court is satisfied the company is unable to pay debts as they fall due
- The court is satisfied the company is insolvent on a balance sheet basis.
What are the rules for serving a statutory demand and how do you serve one?
When looking to make a statutory demand, you should first fill out the correct ‘statutory demand form’ for your requirements. These are available to download from the Government website: https://www.gov.uk/statutory-demands/forms-to-issue-a-statutory-demand. Once completed, you then need to give it to the individual or business that owes you the money. If you know of multiple addresses, it is worth trying all of them.
You should leave the statutory demand form at the registered office for the business that owes you, or if they don’t have a registered office, you should leave it at their main place of business. Ideally, you should seek to give the form to the director of the company, a manager, or the company secretary. It is important to get a ‘process server’ to serve it for you. This can be arranged by a solicitor.
It should ideally not be sent by post or through a letterbox unless it is absolutely unavoidable and can’t be delivered in person. You should look to keep a copy of the statutory demand for your own records, as well as the time and date that you served the demand (this can be found on a postage receipt or through the confirmation from your process server) and evidence that the debtor has received the demand.
Do I need proof of service?
Yes, you will need to ensure you have proof of service in the event that the debtor decides they don’t want to pay the statutory demand as this will ensure you can continue with the debt recovery process. Typically a process server is used to provide proof. You can use the Association of British Investigators (www.theabi.org.uk) to find a local process server or speak with your solicitor who will be able to help you in arranging this.
What types of company can you serve a statutory demand on?
There are a wide variety of companies that you can serve a statutory demand on. Typically, a demand would be issued to a limited company. Under Section 117(1) of the Insolvency Act 1986, these include any companies that are registered in England and Wales, including those classed as a Limited Liability Partnership.
Pursuant to Article 3(1) of the EC Regulation on Insolvency Proceedings, you can also issue to any company who is considered to have their main interest situated in England and Wales.
If a company is unregistered but includes a foreign company, then you can also issue a statutory demand on them thanks to Section 221(1) of the Insolvency Act 1986. It is worth noting that the rules for an unregistered company are much more complex and may require additional legal support to help you understand the specific sections of the Insolvency Act 1986 that relate to them.
Can I serve a statutory demand if the debtor is out of the jurisdiction?
As a statutory demand is not considered to be a court-issued document, you are not required to seek the court’s permission to serve one to a debtor who is abroad. However, it can be a lot more complicated to serve a demand abroad. You will need to serve the statutory demand in the same way as in this country, but it must also align with the local foreign law and their own process for retrieving debts. You may find it best to use legal assistance in this event.
If you are looking to serve the demand abroad, the time limit for complying is generally 28 days, but depending on the country, it can vary slightly. For applying to set aside the demand, the time limit is typically 22 days, but again this can vary depending on what country they are in.
How to serve a statutory demand in a foreign currency
There is no reason why you can’t chase a debt in a foreign currency, and you can use a statutory demand in order to do this. However, it is always worth changing the debt into sterling where possible and proceeding on that basis (as well as listing the amount due in foreign currency) as this makes it less easy for the debtor to challenge the amount and makes it much simpler to pay. Otherwise, there is a risk that the debtor may try and use the wrong exchange rate to take advantage of the situation.
Can I serve a statutory demand for unliquidated/disputed debts?
In the event that you have issued a demand but don’t realise there is a dispute against the debt, the outcome of this depends on whether or not you are seeking to retrieve a debt from a Limited Company or not. If you are, then you will need to agree that you are not looking to wind the company up before you have resolved the dispute.
However, if the debt is for a non-Limited Company or an individual, and they have disputed the debt, then they can request a court hearing to contest it, so it is down to a Judge to decide whether it is valid or not. For both types of scenario, you are still able to continue with any County Court proceedings. However, if there is a genuine dispute, you should seek to resolve this where possible with the debtor before pursuing further.
How to use a statutory demand if the debt is secured
If the creditor holds any security (such as an asset that has been retrieved against part of the debt), then it is important when preparing the statutory demand that you clarify the full amount of the debt that is being claimed, less the value that the creditor is attributing to the security it holds. This is required as part of Rule 10.1(9)(b) of the Insolvency Rules 2016.
Can I serve a statutory demand on a surety or guarantor?
A creditor can serve a statutory demand on a surety, even though the creditor may hold security over the assets of the principal debtor. However, it will need to be issued in accordance with the form prescribed in the Guarantee. No monies can be gained from a Guarantor until their obligations have been triggered by a creditor making a written demand for payment. If there is no demand, then legally it is not perceived as a debt that needs to be paid. Additionally, where the principal debtor is genuinely disputing the debt, serving a statutory demand in this event may not be appropriate. Ultimately, it is critical that you get the preliminary steps correct, otherwise, you may find a later statutory demand to recover payment proves ineffective and will instead leave you to cover the guarantor’s costs.
Can I use a statutory demand on a statute barred debt?
You cannot use a statutory demand for a statute-barred debt. In the event that one is made for a statute-barred debt, it will simply be dismissed.
What happens if there’s a mistake in a statutory demand?
Without proper legal advice and counselling, it’s possible that you may make a mistake when issuing a statutory demand. Depending on the scenario, it can become a complex and challenging process. It is therefore important to seek the best advice to ensure you don’t make a mistake. There are two key scenarios in which a court can choose to set aside a statutory demand if it is found to be defective.
This includes where a statutory demand may be found to be incomplete, inaccurate or misleading in the details it provides of the associated debt that is being claimed from the debtor by the creditor. Additionally, where the statutory demand is claiming debt that was not in fact due to the creditor at the date with which it was served. When looking into mistakes, a court will typically consider a wide variety of concerns in order to identify the most appropriate action. In some cases, the debtor may still be liable for costs, even where there may be an error.
What happens after a statutory demand is served and what are the time limits?
Once a statutory demand has been served, the creditor will need to wait for 18 days if you were in the UK when you were served, or 21 to 34 days if you were in another country when you received one (each country has its own deadlines, which can be found on the Government website) until they can petition for a winding-up petition against a company or a bankruptcy order against an individual. These 18-34 days are crucial for the person who has accrued the debt to act, and either pay the amount owed or contest it if they want to dispute the statutory demand being made against them.
If the debt is being disputed, it is considered appropriate for the creditor to not continue with the statutory demand until this has been resolved. If this cannot be achieved independently, the debtor should then apply to the court for an order, along with their costs, in a bid to set aside the statutory demand.
If it is a company, then they need to request that the creditor won’t issue a petition. However, if this does happen, the company will need to get an injunction order from the court that will prevent the creditor from then issuing a petition.
The date that a statutory demand is considered ‘served’ depends on how it has been issued. If it was sent by post, it is considered ‘served’ on the second day after it has been dispatched – or the next business day if this lands on a weekend. If the statutory demand has been advertised, then it is deemed served on the date it was advertised. If it was issued personally or by e-mail before 2.30pm, it is then considered served on that day. If it was served after 4.30pm on a business day, it will then have been considered issued on the next business day following this.
What happens if the debtor pays or settles the debt?
Once in receipt of a statutory demand, the debtor is required to either settle the debt or reach an agreement for a payment plan. In the event that the debtor pays or settles the debt, then as long as all outstanding costs have been covered, all parties can consider the matter closed and move on. If a payment plan has been agreed upon, the debtor will need to ensure they continue to meet the stipulations of this agreement – otherwise, the creditor will continue to go after them to recover the money owed.
What happens if there is a genuine dispute or counterclaim?
It is highly possible that a debtor may have a genuine reason upon receiving a statutory demand to want to dispute this, or even to make a counterclaim. In the event that the debtor wants to challenge a statutory demand being made against them, they can apply to the court that is named on the demand in order to present a dispute. If you are not sure who this is, simply contact your nearest county court or a solicitor who can advise.
It should be noted that you cannot challenge a statutory demand if it has been served on a company – instead, you will need to apply to stop the creditor from seeking to wind up the company.
Once you have raised a dispute with the court, any bankruptcy petitions that have been filed by the creditor against you will need to be suspended until the point that the court has reached a decision. A court will typically not set aside any statutory demands that have been served on you after the judgement of another court, unless the amount on the demand is considered secured, or you believe the creditor owes you the same amount as you are being demanded.
How individuals can apply to set the debt aside
There are a number of reasons that you may wish to apply for the debt to be set aside. If you are within the 18 days of the demand being served, you will be able to apply to the court to do this. Provided the creditor hasn’t already sought for the bankruptcy petition to be issued, the court may consider an application outside of the time limit.
Reasons for why you may wish to apply for the debt to be set aside include:
– You owe less than £5000
– You feel there is a genuine dispute with the creditor regarding the debt
– You believe the creditor owes you at least the same amount of money as they are claiming you owe them (this is known as a counterclaim)
– The creditor has incorrectly issued the statutory demand
– You have a legal defence for any court action that is being taken against you – for example, the creditor not being in time for taking court action. In this event, you may want to seek advice to ensure you have a legal defence before pursuing this option.
How a company can apply for an injunction to prevent winding up proceedings
Unlike with an individual, the procedure for setting aside does not apply and a company must instead apply for an injunction to prevent winding-up proceedings. If the company doesn’t comply with the demand within the deadline, the creditor is entitled to then present a winding-up petition to the company and to prevent this an injunction is required.
It is also presumed that if a company hasn’t paid the amount due within the deadline, then they are considered unable to pay their debts. This increases the risk of a winding-up petition being presented in court and it can be disastrous for a business.
The injunction would need to be presented to a court that has the jurisdiction to wind up the company and would therefore be able to restrain the presentation of a petition. An injunction needs to be treated with the utmost urgency and as such if you think you are set to be served winding up proceedings then you need to seek legal advice immediately.
What happens if a company does nothing?
Should a company choose not to respond to a statutory demand for a sum exceeding £750, then winding-up proceedings may be started three weeks after the demand has been served. By failing the comply with this demand, the company will be deemed unable to pay the debts.
Technically speaking there is no expiry date for the demand but for limitation purposes, the debt itself has the potential to be time-barred. In addition to this, the court will take a dim view for failing to act in a timely manner unless there is a particularly good explanation.
How to present a bankruptcy petition
A bankruptcy petition can only be presented once the 3 weeks have passed from the point of the statutory demand being issued. The only case in which this can be overruled is if the creditor believes there is a serious chance that the debtor’s assets may be significantly diminished within this 3 week period. If the creditor files the bankruptcy petition later than 4 months after serving, they will have to provide the court with reasons for why this was delayed.
A bankruptcy petition should not be served if the debtor has paid in full, the debtor has discharged part of the debt and the amount left is below £5,000, or if the debt is disputed on substantial grounds, or if there has been a counterclaim made that would reduce the debt to below £5,000.
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