Collecting unpaid debts can be a daunting task for any business owner. One way to make the process less stressful is to understand the legal tools available for debt recovery and how to use them effectively. One such tool is a statutory demand. A statutory demand is a powerful action a creditor can take to show that a person or company cannot pay their debts and is therefore insolvent.
However, it’s important to note that issuing a statutory demand also carries significant risk, and seeking professional advice is essential before proceeding. In this article, we will discuss the ins and outs of issuing a statutory demand, including what it is, how it works, how to serve one, and the potential consequences of using this legal tool.
We will also explore alternatives to a statutory demand and the importance of considering the specific circumstances of each debt before deciding on the best course of action.
What is a statutory demand?
Understanding that a statutory demand is not strictly a debt recovery procedure is vital. Instead, it is an instrument you can use to show that the person (or company if the debt is £750 or more) cannot pay their debts and are therefore insolvent.
For example, if a person owes you more than £5,000 or a company owes over £750, you can send a Statutory Demand.
How does a statutory demand work?
A statutory demand will state that if a debtor does not pay up within 21 days, you will issue bankruptcy proceedings against them or, in the case of a company, begin winding-up proceedings.
Proceedings for bankruptcy or winding-up must begin within four months of serving the statutory demand.
How do I serve a statutory demand?
To serve a statutory demand on an individual, you must first pick the correct form from the Government’s website. The form must then be filled out and ‘served’ on the intended recipient by handing it personally to the debtor or sending it by post or courier.
To serve a statutory demand on a limited company, you can either:
- Send it by post or courier
- Leave it at the debtor’s principal place of business or registered company address
- Give it to the company’s director, secretary, manager or principal officer
If you want to avoid delivering the demand yourself, you can ask your solicitor to organise a professional process server to serve it for you. Make sure you keep records of the date and time the demand was served and details of the debtor receiving the demand.
How much does a statutory demand cost?
As mentioned above, you should never issue a statutory demand without consulting a debt recovery solicitor. At LawBite, we understand that legal action to recover debt needs to be affordable, efficient and effective which is why our expert dispute lawyers and solicitors are ready to step into action to provide their expert knowledge and advice to help you ensure you know your legal options to recover money. You can find out more about our debt recovery services below.
Can you withdraw a statutory demand?
Once a statutory demand is served, an individual has 18 days to apply to set it aside. In the case of a company, it has 21 days to apply for an injunction to stop a winding-up petition. If the debtor successfully disputes the serving of a statutory demand, the Court is likely to demand you pay the debtor’s legal costs.
One way to mitigate this risk is to withdraw the statutory demand if the debtor brings a claim disputing it. This is a skilful tactic as if the debtor is prepared to dispute the Statutory Demand in court; it indicates that they have the means and incentives to avoid bankruptcy (or winding up in the case of a company).
The debtor may ignore the statutory demand or not respond because they are insolvent. You will then need to decide whether to:
- Write off the debt
- Begin the bankruptcy or winding up process, which may result in you not receiving any money due to other creditors being paid first
- Issue proceedings to secure a County Court Judgment (CCJ) that you may be able to enforce once the debtor can pay
Can a creditor present a petition without a statutory demand?
If you have obtained a CCJ against the company that owes you money, you can issue a winding-up petition with no statutory demand.
Without a CCJ, a statutory demand must be issued beforehand. Regardless of which route you take, you need to prove that when the winding-up petition was issued, the company owed you an undisputed debt of £750 or more.
You should never issue a statutory demand for a disputed debt; the Court will automatically dismiss it and may make an order telling you to pay the other side’s costs.
Get legal assistance from LawBite
Although the threat of bankruptcy or a winding-up petition may encourage a debtor to pay their oustanding debt, issuing a statutory demand is far from risk-free. Our experienced debt recovery solicitors can advise you on whether this is the best course of action and ensure your best interests are protected if you decide to proceed.