What is a statutory demand?
A statutory demand is in essence a demand for payment of a debt served upon an individual in accordance with s. 268(1)(a) Insolvency Act 1986. It is a document served by a creditor upon a debtor that is intended to prove that the debtor owes the specified sum of money.
A statutory demand is the first legal step to winding up a debtor company or making an individual bankrupt, if the debt is for more than £750 or £5,000 respectively. A statutory demand is capable of being served as soon as the debt is due. If a creditor is owed money and wants the debt paid quickly, taking legal advice on serving a statutory demand is recommended.
Rules of service
Although serving a statutory demand does not involve the court (and there are no court fees to pay), a creditor must still follow the correct rules of service, as incorrect service could be fatal to the debt claim.
The statutory demand is intended to be relied upon in further legal proceedings against a debtor and which ought to:
- provide details of the financial claim, with interest calculated to the date of the demand;
- be served on you as debtor personally or by post; and
- tell you what to do to comply with the demand, have it set aside and the consequences of doing neither.
Why should a creditor serve a statutory demand?
Creditors often serve a statutory demand as a more cost-effective and speedier method to ensuring the debtor pays the debt rather than instigating court proceedings (initially anyway). Preparing and serving the statutory demand (depending on the quantum of the debt and the facts of an individual case) could potentially be done relatively quickly (with the cost of a process server included). Given that this process does not involve the Court, there are no added court fees or delays seeking listings of applications (unless the debtor challenges the statutory demand e.g. if the debt is disputed).
A statutory demand starts the time running for a debtor to honour its debts, as once served, the debtor has 21 days within which to pay the debt.
Moreover, a statutory demand carries a threat of bankruptcy (or winding-up if served upon a company), and could focus the mind of a debtor to ensure re-payment of the sums is expedited or engage in settlement negotiations.
A creditor’s guide to drafting a statutory demand
The format of a statutory demand must follow the guidelines set out in the Insolvency Rules 2006, but it is not a court document. Although the demand is dated at the time of issue, it does not expire. The time limits to deal with a demand only apply from the date of service.
Pursuant to Rule 10.1 Insolvency Rules 2016, the contents of a statutory demand are as follows:
- the heading either “Statutory demand under section 268(1) (debt payable immediately) of the Insolvency Act 1986” or “Statutory demand under section 268(2) (debt not immediately payable)”;
- identification details for the debtor;
- the name and address of the creditor;
- a statement of the amount of the debt, and the consideration for it (or, if there is no consideration, the way in which it arises);
- if the demand is made under section 268(1) and founded on a judgment or order of a court, the date of the judgment or order and the court in which it was obtained;
- if the demand is made under section 268(2), a statement of the grounds on which it is alleged that the debtor appears to have no reasonable prospect of paying the debt;
- if the creditor is entitled to the debt by way of assignment, details of the original creditor and any intermediary assignees;
- a statement that if the debtor does not comply with the demand bankruptcy proceedings may be commenced;
- the date by which the debtor must comply with the demand, if bankruptcy proceedings are to be avoided;
- a statement of the methods of compliance which are open to the debtor;
- a statement that the debtor has the right to apply to the court to have the demand set aside;
- a statement that rule 10.4(4) of the Insolvency (England and Wales) Rules 2016 states to which court such an application must be made; and name the court or hearing centre of the County Court to which, according to the present information, the debtor must make the application (i.e. the High Court, the County Court at Central London or a named hearing centre of the County Court as the case may be);
- a statement that any application to set aside the demand must be made within 18 days of service on the debtor; and
- a statement that if the debtor does not apply to set aside the demand within 18 days or otherwise deal with this demand within 21 days after its service the debtor could be made bankrupt and the debtor’s property and goods taken away.
Instruct specialist statutory demand lawyers
We are expert Statutory Demand solicitors and have years of expereince at both issuing and defending statutory demands. We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inns of Court adjacent to the Royal Courts of Justice. We are experts in dealing with matters surrounding insolvency in particular issues. Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending winding up petitions vigorously at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.