Statutory Demands : Creditor V Company
15th April, 2015
A Statutory Demand is a formal written notice demanding payment of a debt owed by a company to a creditor.
The service of the Statutory Demand by the creditor usually indicates that the creditor may present a winding up petition to close the company down if the debt is not paid. Currently the minimum debt amount must be in excess of £750; this will be increasing to £5,000 in October 2015.
Consequences of ignoring a Statutory Demand
If a company neglects to comply with a Statutory Demand Notice for a sum that is undisputed and exceeds the minimum amount, the creditor will be entitled to present a petition to wind up the company, after a period of only three weeks from service of the Statutory Demand.
In circumstances where there is no response to a Statutory Demand, the Court will deem a lack of response as failure to comply with the demand. Failure to comply is evidence of a company being unable to pay its debts which can then result in a Court Order to wind the company up being made.
More significantly, if a winding up petition is presented and then advertised, this will result in the banks freezing the accounts of the company restricting the ability to trade. It is therefore a very serious matter.
Challenging a Statutory Demand
There are a number of grounds on which a Statutory Demand can be challenged. A petition for a winding up will not proceed if:
- the debt is genuinely disputed;
- the company has a genuine cross claim or set off against the creditor;
- the company has a reasonable reason for not paying the debt claimed; or
- The English Courts have no jurisdiction over the debt claimed.
What to do when you receive a Statutory Demand
Due to the very short time span in which you have to respond to the demand you must act fast, investigate the claim made by the creditor, and seek advice from an insolvency specialist.
Applications to set aside a Demand
There is no mechanism to set aside a Statutory Demand made against a company. The company’s options usually are to either or to issue an application for an injunction to restrain the presentation of a winding up petition. This must be done swiftly.
Issuing a Statutory Demand is not a debt collection tool and should not be used lightly especially in circumstances where there is a possibility that the debt is genuinely disputed as this might well have serious cost consequences for the Creditor. If in doubt seek advice before issuing a Statutory Demand as there are other more appropriate processes and may well provide more positive results.
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