Issue Statutory Demand

What is a statutory demand?

A statutory demand is a legal document seeking payment of a debt served by a creditor per s. 268(1)(a) Insolvency Act 1986 upon a debtor and intended to technically prove if not paid (for the purpose of insolvency in the form of winding-up or bankruptcy) that the debtor is unable to pay the money specified. It warns of and is a prelude to a Winding-up Petition for a Company or a Bankruptcy Petition for an Individual.

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 (or not) 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.

Should a creditor always serve a statutory demand?

No, sometime it is costly mistake to do so. Creditors often serve a statutory demand as a cheap method of demanding the debtor pays the debt rather than instigating court proceedings. 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 the ‘Stat Demand’ process does not involve the Court, there are no court fees or court delays. This is the case only unless the debtor challenges the statutory demand. If the debt is disputed via an application to set aside the stat demand then significant costs can be claimed by the debtor if they succeed in the set aside application.

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.

Pros vs Cons of Statutory Demands

By serving a statutory demand, the creditor is giving notice to the debtor that it must pay the debt within a specific timeframe, usually 21 days. If the debtor fails to comply with the demand and does not make payment or reach a satisfactory agreement with the creditor within that period, it is technically considered unable to pay its debts.

The concept of a company being deemed unable to pay its debts is a crucial aspect in the winding-up process. Section 123(1)(a) of the Insolvency Act 1986 states that a company’s inability to pay its debts is one of the grounds on which a winding-up order may be made. Essentially, if a company fails to pay a statutory demand for a sum exceeding £750, a stat demand can provide evidence that it is insolvent and may be subject to winding-up proceedings.

What about a Non-statutory Demand?

However a stat demand may not be the best course of action. While serving a statutory demand is a common step before commencing company/partnership winding-up proceedings it is not mandatory (it is required for individual bankruptcy petitions). There are many types of debt cases where a creditor carefully determines that it prefers not to use a statutory demand or where it is not advisable to do so. In such instances, an alternative option is to send a non-statutory letter of demand. This letter serves a similar purpose as a statutory demand, requesting payment of the debt within a shorter specified timeframe. It does not trigger the automatic presumption of the company’s inability to pay its debts but can often lead to more pressure on debtors and more chance of prompt payment.

Statutory demands for court judgment debts (CCJs)?

When you have a court judgment in your favour, a statutory demand based on that judgment is a valuable tool for debt recovery. This approach is not only powerful but also cost-effective. By leveraging a formal court judgment, the statutory demand debt becomes indisputable, eliminating any potential issues regarding its validity and the risk of a set aside stat demand application or injunction restrain except if an application is made to set aside the judgment itself.

Opting for a statutory demand based on a court judgment allows for a quick and efficient attempt to enforce the judgment. Unlike relying solely on high court enforcement officers, this method provides prompt insight into the debtor’s ability to pay. Time is of the essence, and with this approach, you can expedite the debt recovery process.

Even the most elusive debtors will find it challenging to evade their responsibilities when faced with a statutory demand. Non-payment in response to a statutory demand can lead to severe consequences such as a winding-up petition for companies or a bankruptcy petition for individuals. As a result, a statutory demand based on a judgment serves as a highly effective and affordable strategy to recover outstanding court judgment debts.

That’s why we offer a hard-hitting debt recovery solution through the use of statutory demands. With our proven track record, we have helped numerous clients successfully recover their debts each year, and we are ready to assist you too. With our expertise and experience, you can trust us to navigate the complexities of debt enforcement and maximize your chances of successful recovery. Let us handle the process, so you can focus on what matters most to you.

We would like to highlight that while a statutory demand for a County Court Judgment (CCJ) against a company is often considered a suitable approach, it’s important to recognise that a tailored strategy can be implemented. In certain cases, a non-statutory demand may suffice and can be effectively served as an alternative option. We understand that each situation is unique, and we are dedicated to providing a personalized approach to meet your specific requirements.

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. It is important to instruct experienced professionals like our solicitors and barristers otherwise you could end up getting your statutory demand set aside and paying costs to the other side.

WARNING: DEBT RECOVERY AGENCIES

Debt recovery agencies that are not SRA authorised solicitors should be avoided as they are not lawfully entitled to manage a winding-up petition or any court litigation in the UK (an offence under the Solicitors Act 1974) and may engage in sharp practice both against their client and the other side for which you could be punished by the Court.

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WARNING – OBTAIN SPECIFIC GUIDANCE & ADVICE

The information on this website is not legal advice; you should always obtain specific advice on the circumstances of your case. Our Winding-up Petition Solicitors & Barristers provide specialist legal advice based on decades of expertise. Click here or call +442071830529 to get in touch. For regulatory reasons we do not take on low value cases nor provide free legal advice, information or guidance and our team cannot answer questions from non-clients.

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