What is a statutory demand?
A statutory demand is a formal written demand for payment of an undisputed debt within 21 days. If the debtor does not pay within the 21 days and either fails to apply to have it set aside (where the debtor is an individual) or fails to apply to restrain the creditor from presenting a winding-up petition (where the debtor is a company), the creditor can use the statutory demand as grounds to present a petition to the court for a bankruptcy order or winding-up order.
When can you issue a statutory demand?
Individual Debtor
Where an individual debtor is indebted to a creditor for a sum equalling or exceeding £5,000, the creditor may serve a formal statutory demand on that individual requiring payment, or for the debt to be compounded for or secured, within 21 days of the date of service of the demand.
Company Debtor
In the case of a company debtor, the minimum value of a debt claimed on a statutory demand against a company must be equalling or exceeding £750.
A statutory demand issued to a business is a notification that if the debt is not settled or some other action agreed upon, legal action will commence to liquidate the company.
How do you serve a statutory demand?
A statutory demand must be brought to the attention of the debtor and there are various ways of doing this:
- The safest method of ensuring this condition is met is to personally serve the demand on the debtor, by handing it to the individual, or in the case of a company, leaving it at the registered office address.
- If the debtor’s current residential address is known, it can be posted by mail. However, this is not recommended given the real possibility that it will not reach the debtor’s attention, or potentially result in the debtor simply denying the demand was ever received.
- More commonly, demands are served by email to an address known to be regularly used by the debtor.
What happens next?
Individual Debtor
Once a statutory demand has been served on an individual debtor, the individual has 18 days to make an application to court to set aside the statutory demand.
If the application is not made by the debtor within the 18-day period, the creditor is in a position after 21 days from the date of service of the statutory demand to issue a bankruptcy petition against the individual.
Company Debtor
A company issued with a statutory demand may apply for an injunction to restrain a winding up petition because the debt is in dispute or there is a valid counterclaim reducing the debt below the threshold of £750.
Upon receipt of a statutory demand, if a company doesn’t dispute the debt, negotiate a settlement with the creditor, or repay the money owed, the creditor can petition the court to wind up the business.
Service of a winding up petition will trigger a requirement to pay the debt in full within 7 working days.
What happens after I challenge a statutory demand?
If the court accepts your application challenging the statutory demand, they will arrange a hearing and the payment deadline will be suspended until then.
At the hearing, both sides will present their cases and the court will either make a decision then or arrange a further hearing after which a final decision will be made.
If you win, the court will set aside the statutory demand and the payment deadline will be suspended. However, if your application to set aside the statutory demand is unsuccessful, or if you are unable to apply to set it aside (for example, because the time limit has run out), the creditor may apply to make you bankrupt. They can do this at any time after 21 days have passed since the statutory demand was served on you.
What to do next if the payment is still not made
If the party on who the statutory demand was served does not either pay or respond within 21 days, the next step is to apply for a bankruptcy petition (individual debtor) or a winding up petition (company debtor). If the court finds in your favour, the other party must be wound up or made bankrupt.
Be warned you still may not be paid! Unfortunately, as the bankruptcy/winding-up petitioner, you do not get priority over whatever money is available.
How can we help?
Martyn Prowel Gartsides Solicitors has a very experienced team of solicitors with extensive expertise in a broad range of issues. Contact our team today by calling us on 029 2047 0909 or by emailing us at [email protected] or by making an online enquiry.