18th March 2019
A statutory demand is a useful weapon for anyone owed money. It’s a formal written demand for payment of a debt by an individual or a company. It’s not a court document: it’s not issued by the courts, but instead completed by the person of business owed the money.
I have found statutory demands to be a very effective way of getting client’s unpaid invoices paid, for instance. They are also useful if you have a judgment (CCJ) or costs order against someone.
Statutory demands are often seen as the first step towards bankruptcy proceedings against a debtor individual or insolvency proceedings against a company. A creditor can present a bankruptcy petition for a debt if it can show that the debtor is “unable to pay the debt owed” or it has “no reasonable prospect of being able to pay”. The debtor then has 3 weeks to comply (i.e. pay up) or apply to the court to set aside the statutory demand/prevent a winding up petition. If not, the creditor can initiate bankruptcy/insolvency proceedings. The failure to pay is evidence of the debtor’s inability to pay.
The debt needs to exceed £5,000 for an individual or £750 for a company.
One important point to note is the need for formal ‘service’ of a statutory demand on the debtor. The creditor must be able to prove that it was served properly. The best way to do this is by personal service, i.e. by the demand being given by hand to the debtor, or leaving it at the company’s registered office. I always tend to use a professional process server.
If the debtor wants to set aside the statutory demand – or for a company, prevent the presentation of a winding up petition – they must apply to the court.
On what grounds will the court set it aside? The main one is if the debt is disputed – for instance, if the debtor says that the creditor’s invoice is for work that was never done. Another ground is if the debtor has a counterclaim against the creditor that reduces the debt to below £5,000 (£750 for a company).
Overall, a statutory demand is a quick and easy way of getting money you are owed. It tells the debtor that you are serious, and that if they don’t pay up the consequences for them will be severe. However a demand is generally for ‘straightforward’ debts, where the debt is unlikely to be disputed, like an invoice or judgment debt.
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