What to do if you receive a statutory demand…
9th August, 2018
We have been approached by a number of clients who have received a statutory demand, either personally or to their company, and they have asked us what to do about it.
One business was contacted by a company demanding payment of a debt owed under a contract for TV advertising in a shopping mall. We presume – but it was never made clear – that the claimant had bought the debt from the liquidator. In fact the TV advertising had never happened because the advertiser had gone bust. Yet, despite this, the claimant served a statutory demand and was very threatening on the phone when the matter was disputed.
Another client received a statutory demand for a debt that was over 6 years old. This was “statute barred”, which meant it was not enforceable as it was too old.
A statutory demand is a formal document asking for a debt to be paid within 21 days, failing which the creditor threatens to petition the Court for the winding up or the bankruptcy of the debtor.
A statutory demand is not a Court form and does not start legal proceedings. However, it must contain prescribed information or the creditor cannot rely on it in Court proceedings.
Since sending a statutory demand costs little or nothing and does not require a solicitor, some creditors will use it as part of a debt enforcement process, to put a debtor under greater pressure to pay.
A statutory demand should never be used when the debt is disputed, or when the undisputed part of the debt is less than £750 for a company debtor or £5,000 for an individual.
Nor should a statutory demand be used before the debt is due for payment, or if the debt is secured.
If you receive a statutory demand and the debt is disputed, you should take legal advice. However, if you want to go it alone, you can write to the creditor without delay and explain why the debt is disputed. Ask the creditor to confirm, in writing, immediately, that the statutory demand is withdrawn.
If the statutory demand is not withdrawn, you should instruct a solicitor to assist you. If you are an individual, we can apply to set aside the statutory demand. If it is your company which has received the statutory demand, then we can help you apply for an injunction preventing the presentation of a winding up petition.
If you do not do either of these things, and the statutory demand is not withdrawn, then you risk a petition for winding up your company or your personal bankruptcy being presented at Court.
That can cause serious problems, such as frozen bank accounts or suppliers ceasing to deliver or arriving to take away goods already delivered.
In this way a petition for winding up can cause a company to fail, even if the underlying business is good.
It is tempting to ignore a statutory demand and hope the creditor will do nothing. It is certainly true that some creditors (genuine or not) will issue statutory demands without any intention of presenting a petition at Court, because a petition must be filed with a Court fee and deposit of more than £1,000.
However, you should never ignore a statutory demand; if the debt is disputed then at the very least write to the creditor immediately and say so. Better still, get a solicitor involved because it could be possible to use the Court to punish the claimant for abusive use of a statutory demand.
But strict deadlines apply for challenging statutory demands, so it is important to take prompt action.
If you have any queries about this or other matters, please contact Jan Chillery using the details provided below.