A statutory demand if a formal demand for payment of a debt owed by either a company or an individual (the debtor). Anybody that is owed money (the creditor) can make a statutory demand, so long as the debt is less than six years old.
Once the statutory demand is given to an individual or company, they then have 21 days to either pay the debt or come to an agreement on how it will be paid.
It is not necessary for a judgment to have been awarded against the debtor, however the debt has to be undisputed.
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A statutory demand does not need to be issued by the courts since it is not a court document. It is a means of ensuring that a debt is settled. There are several advantages to a statutory demand:
Because it does not involve the courts, it can be a means of putting pressure on the debtor to settle the debt that is relatively quick and inexpensive
Preparing and serving a statutory demand is relatively simple
Issuing a statutory demand should result in the debt being settled but it can also reveal the details of any dispute or counter-claim that exists.
Where the debtor is an individual or company with an ongoing commercial relationship it can result in a negative impact on things moving forward.
The implications differ depending on whether the debt is owed by an individual or a company.
Where the debtor is an individual, if the debt is in excess of £5000 and is not settled following a statutory demand, then the creditor can apply to commence bankruptcy proceedings against the debtor. Payment must be made within 21 days of the demand.
The minimum value of the debt is much lower in this case at only £750. It is not necessary to have served a statutory demand before going down the route of presenting a winding up petition, but it can be an easier route to have the debt settled and to warn the company of the possibility of proceedings if it is not settled. Again payment must be made within 21 days of the statutory demand.
Service can be performed in various ways:
For an individual debtor- giving it to them in person (using all known addresses)
Leaving it at the registered office for a company that is the debtor
Giving it to the company’s director, company secretary, manager or principal officer
Arranging via a solicitor for a process server to serve it on your behalf
The demand should be served personally if possible, bringing it to the attention of the debtor. If this is not possible then it can be sent by email, first class or registered post or delivery to the debtor’s residence.
It is very important to note the time and date that the statutory demand was served as well as the fact that the debtor has received the statutory demand in case the demand is not complied with.
If the demand is ignored, then the creditor can:
Start bankruptcy proceedings against the debtor if they are an individual.
Wind up a company if they are the debtor
Again the process here depends on whether the debtor is an individual or company.
The debtor can challenge the statutory demand if they do not agree with it and apply to have it set aside. The court named on the demand would need to be contacted to do this.
The statutory demand will be set aside if the debtor can evidence that the debt
Has been paid
Can be paid in a short time or secured
The debtor has to provide written evidence to support a dispute or to show that they can pay the debt. The courts will give a response to the challenge:
If they agree with the challenge, then the case will be passed to the bankruptcy register who will arrange a hearing
If they disagree then the creditor will be given permission to issue bankruptcy proceedings against the debtor
If the matter proceeds to a hearing, both sides will present their case to a registrar or judge. If the court agrees with the challenge then the debtor will not have to pay the debt the statutory demand will be set aside, meaning that the creditor cannot start bankruptcy proceedings.
If the challenge is not successful, then the debtor has 21 days to pay the debt. If the debt is over £5,000 then the creditor can apply to commence bankruptcy proceedings against the debtor.
It is not possible for a statutory demand against a company to be challenged since it is not a requirement that has to be performed before presenting a winding up petition. In this situation the debtor needs to apply to stop the creditors from winding up the company.
There are strict time limits that must be complied with to challenge the statutory demand:
18 days if the debtor was in the country when they received the statutory demand
21-34 days if the debtor was abroad- the length of time depends on the country you were in (see the list here)
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