Understanding and Responding to Statutory Demands

A Statutory Demand serves as a formal request for payment of an outstanding debt within a specified timeframe. It is crucial to respond promptly to avoid potential legal actions such as bankruptcy petitions or winding up petitions. This article provides insights into identifying valid statutory demands and outlining effective response strategies.

Facing a statutory demand can be daunting, but you don’t have to navigate it alone. Benefit from our dual-qualified lawyers who can provide comprehensive advice tailored to your unique situation. We’ll represent you directly with your creditor or their solicitor to ensure the swift withdrawal of any statutory demand.

In this comprehensive guide, we offer valuable advice and guidance for effectively responding to statutory demands. It’s crucial to respond promptly to a statutory demand to avoid significant repercussions like creditor bankruptcy or a winding-up petition. You have a window of 18 days to submit a set-aside application to respond to the demand and protect your financial interests.

What is a statutory demand?

As per the Insolvency Rules 2016 (IR 2016), sections 7.2 and 7.3, a statutory demand is a written notice demanding payment of a debt owed by a company to a creditor. This demand is governed by section 459E of the Corporations Act 2001. It serves as the first legal step in potentially winding up a debtor company or declaring an individual bankrupt, if the debt exceeds £750 or £5,000, respectively.

A statutory demand serves as a means to evaluate if a company can meet its financial obligations promptly. If the company fails to pay its debts within 21 days of receiving the demand or doesn’t arrange for payment to the creditor’s satisfaction, it is considered insolvent, and the creditor can take steps to wind up the company.

Ensuring the Validity of a Statutory Demand

Before responding to a statutory demand, it’s imperative to verify its validity to navigate the process effectively.

For a statutory demand to be valid:

• It must be written.
• The debt must be authentic and presently owed.
• The demand must be issued in good faith.
• The total debt amount must be clearly specified.
• The company is required to settle the debt within 21 days.
• The demand must be signed by the creditor or their counsel.
• It must be according to the specified format in Schedule 2 of the Corporations Regulations 2001.

Usually, a statutory demand is supported by an affidavit that outlines the debt details or includes a court order confirming the debt’s legitimacy. Moreover, to be considered valid, the demand must adhere to service requirements, which requires serving it on the company through delivering or posting it to the registered address, or personally serving it on the company director.

While serving a statutory demand does not require involvement from the court, and there are no associated court fees, creditors must follow the proper rules of service. Incorrect service could potentially jeopardise the validity of the debt claim.

At what point was the demand officially delivered?

Determining the start of the 18 or 21-day period is a critical aspect of responding to a statutory demand. In legal terms, “service” refers to the proper delivery of the statutory demand document to the recipient. Ideally, creditors should personally serve the demand, ensuring direct receipt by the intended party. However, if personal service is not feasible, creditors may resort to alternative methods such as sending the demand via first-class mail or delivering it directly through the recipient’s letterbox.

In exceptional circumstances, statutory demands may be publicly advertised in a newspaper. In such cases, the date of service is considered to be the day the advertisement appears in the newspaper. On the other hand, if the demand is sent by mail, the date of service is deemed to be seven days after the posting date.

Navigating Statutory Demands: What’s Next for Your Company?

Upon receiving a statutory demand, a prompt response is of utmost importance. You have a 21-day window to act from the date of service. If you consider the demand unjustified, you have the option to petition the court for its dismissal.

Three primary ways exist for challenging a statutory demand:

• Genuine Dispute: If there’s a bona fide disagreement concerning the demand’s validity or the amount owed.
• Offsetting Claim: If your company holds a counterclaim against the demanding party, reducing the debt below the statutory amount of £2,000.
• Defect in Demand: If a significant flaw exists in the demand, potentially resulting in injustice without court intervention.

Accompanying your petition to set aside the demand, an affidavit serves as crucial supporting evidence. It substantiates the grounds for contesting the demand’s validity.

Further options for your company’s response include:

• Payment Negotiation: Discussing alternative payment terms or disputing the debt’s amount.
• Correspondence: Clearly outlining reasons for disputing the debt and urging the creditor to retract the demand.
• Injunction: Seeking legal recourse to stop winding-up proceedings.
• Petition Challenge: Contesting a winding-up petition initiated by the creditor.

Choosing the appropriate course of action hinges on whether your company acknowledges or disputes the debt. We’re here to navigate these complexities and safeguard your company’s interests every step of the way.  

If the company acknowledges the debt, what steps should it take?

If the company accepts the debt, it should promptly reach out to the creditor to arrange payment. If the company commits to paying the petition debt, it’s advisable to secure written confirmation from the creditor, ensuring they won’t file a winding-up petition. If the creditor declines to provide such assurance, the company might need to pursue obtaining an injunction. If paying the debt in full isn’t feasible, the company could propose paying in instalments or offer a reduced amount as settlement.

Consequences of Non-Compliance with Statutory Demands

When a company fails to address a statutory demand for a debt exceeding £750 within three weeks of service, the creditor gains the right to initiate winding-up proceedings against the company.

Neglecting to address a statutory demand carries severe repercussions for the company. Allowing the creditor to petition for the company’s winding-up can have profoundly serious implications. Responding promptly to the statutory demand within the provided 21-day timeframe is essential. Seeking timely legal advice can greatly assist in navigating these intricate proceedings.

Our specialist winding-up petition lawyers are experts in defending winding-up petitions. We can advise you as to the specific merits and demerits of your case and can assist you in opposing winding up petitions and negotiating with creditors.

Disputing the Debt: What Are Your Options?

If you find yourself unable to reach an agreement with the creditor or if there’s a dispute regarding the debt, you may if you are an individual have the option to apply to the court to set aside the statutory demand. However, it’s crucial to note that you only have 18 days to initiate this process. If you’re a company, you can alternatively apply for an injunction to prevent the presentation of a winding-up petition. Making these applications can be complex, and it’s advisable to seek legal advice if you are considering pursuing either of them.

Our Statutory Demand Experts are able to give specialist legal information and advice relating to statutory demands on an urgent basis for a discounted fixed fee. To contact our Statutory Demand Solicitors or Statutory Demand Barristers please click here or call London 02071830529.