If a person or company has a judgment against you or believes that you owe them monies for a debt, one of the ways the creditor can seek to attempt to recover that debt or judgment is by the service of a statutory demand.
What is a statutory demand?
Statutory demands are not formal court documents and are not issued or served by the court.
A statutory demand is:
- A written document from an individual or company;
- Sent to an individual or company;
- Demanding payment of an outstanding debt/judgment from that individual or company within 21 days.
A statutory demand may be the first step in a creditor commencing either bankruptcy proceedings against an individual or winding up proceedings against a company.
A statutory demand needs to be brought to the attention of the debtor andn many cases, it will be personally served on the individual or served at the company’s registered office.
However, statutory demands can also be sent by post or even electronically, if the creditor can prove that it has been brought to the attention of the debtor (i.e. by providing a certificate of service or email proof of receipt).
Often prior to the service of a statutory demand, the debtor will be aware of the debt or judgment being pursued.
They will have either been served with court proceedings (in the case where a judgment is being pursued) or a creditor may have sent a letter before action, but there is no formal requirement to do so.
A statutory demand can be for any amount. Typically, they are not used for sums less than £750.00 (where the debt is owed by a company) or £5,000.00 (where the debt is owed by an individual), as these are the current thresholds over which a court can wind up a company or make an individual bankrupt.
Statutory demands should only be used by creditors where there is already a judgment or where the debt is not disputed.
If the debt is disputed, then a Court may set aside a statutory demand, as they should not be used for debt recovery purposes (even though they often are).
If the debt is disputed, the correct procedure is for an individual or company to issue court proceedings to recover the debt and subsequently obtain a judgment for that debt.
I have received a statutory demand – what should I do?
If you or your company have received a statutory demand, you must not ignore it and must not delay responding to it, as there is only a short period of time to act, failing which the creditor could commence bankruptcy or winding up proceedings.
As set out above and within the demand itself, you only have 21 days from the date you were served with the statutory demand to pay the debt set out in the statutory demand.
I owe all or part of the debt
If you have the money to pay the debt or judgment and are prepared to do so, then you should contact the creditor as soon as possible to make payment or arrange a payment plan with them.
Once the debt has been repaid in full, you should request that the creditor formally withdraws the statutory demand in writing.
If you are unable to pay all of the debt or reach an agreed repayment plan, then you may wish to consider repaying part of the debt, so that the amount owed to the creditor is below the thresholds for a creditor to present a bankruptcy or winding up petition (£5,000 for bankruptcy or £750 for winding up).
Most creditors would prefer to receive some payment of the debt which is owed to them rather than having to take further steps to make someone bankrupt or wind up the company.
If they proceed down the bankruptcy or winding up route, then they are less likely to receive the monies owed to them.
As such, it is always worth contacting the creditor to see if an agreement can be reached.
Creditors may want to see details of your assets and other liabilities so they can know what you may be able to afford to pay them.
What if I dispute the debt?
If you, however, dispute the debt, then depending on whether you are an individual or a company, you will only have a small window to make an application to court to object to the statutory demand and prevent the creditor taking the next steps, which could be bankruptcy or winding up petitions.
Individual disputing the debt
If you are an individual and you dispute the debt, then you only have 18 days from the date of service of the statutory demand to make a court application to set aside the statutory demand.
If you only dispute part of the debt, then if the undisputed sum exceeds £5,000, the Court may not set aside the statutory demand and you could still face a bankruptcy petition being served on you.
In this instance, you may wish to pay the undisputed sum, so that the amount owed is less than £5,000.
It is advisable to seek legal advice if you wish to make an application to set aside the statutory demand.
The application will need to be accompanied by a detailed witness statement setting out reasons as to why the debt is disputed.
The Court will only agree to set aside the statutory demand if it can be shown that the debt is genuinely disputed on “substantial grounds”.
For example, if the amount claimed is incorrect, or the creditor already has security for the debt or you have a counterclaim which exceeds the level of the debt, then a court may set aside the statutory demand.
Sometimes errors within the demand or with service of the demand can also lead to it being set aside by the court.
Company disputing the debt
If you are a company and you dispute the debt (or at least £750 is disputed), then you cannot apply to set aside the statutory demand. Instead, you have to make an application for an injunction to restrain the creditor from either presenting or advertising a winding up petition.
There is no prescribed time limit for making such an injunction application, but it should be made as soon as possible after the company is served with the statutory demand, as if the statutory demand goes unpaid or unchallenged for 21 days after it was served, the creditor can then present a winding up petition to the court.
As with setting aside statutory demands, if you need to make an application for an injunction to restrain the presentation or advertisement of a winding up petition, then it is advisable to seek legal advice.
Again, the application will need to be accompanied by a detailed witness statement setting out reasons as to why the debt is disputed.
The Court will only agree to grant the injunction if it can be shown that the debt is genuinely disputed on “substantial grounds” or there is a valid counterclaim which exceeds the debt owed to the creditor or the creditor has security over some of the company’s assets which exceed the debt.
With both applications to set aside statutory demands and injunctions restraining the presentation or advertisement of a winding up petition, if you are successful, then ordinarily you will also be able to recover your legal costs of any application, although your solicitors will be able to advise you further on this.
How Mackrell can help you with statutory demands?
At Mackrell LLP, we have extensive experience in acting for both creditors and debtors in relation to either presenting statutory demands or defending them.
Our lawyers have successfully recovered many thousands of pounds worth of debts using statutory demands and have also successfully set aside statutory demands and prevented winding up petitions being presented or advertised where the debtor disputes the debt is owed.
We can provide you with straightforward, cost-effective advice in connection with your statutory demand enquiries, so please get in touch.
