Someone who is owed money can make a statutory demand for payment from either an individual or a company.
The individual or company, on receiving a statutory demand then has 21 days to either:
Pay the debt
Reach an agreement to pay
A statutory demand needs to be made on a specific form depending on who the debtor is. Also, it is important that that the form is served on the debtor in a specific way:
In the case of an individual, it is best to give the demand to them in person
For a company, the demand should be left at its registered office
In both cases, you can use a ‘process server’ to properly serve the demand
You must keep a record of the time and date that the demand was served. This information will be required if your demand is ignored.
If the debtor does not pay the debt or agrees to your statutory debt within 21 days you can:
start bankruptcy proceedings against any individual who owes you £5,000 or more
wind up a company that owes you £750 or more
although it should be noted that you have to proceed with the above within four months, otherwise you will need to explain to the Court why you still wish to proceed if you go over the four month period.
Challenges to a statutory demand
The implications for a debtor that ignores such a demand could potentially be devastating therefore it is likely that if there are sufficient grounds they will challenge the demand.
An individual must make an application to court to make a challenge. There will be a hearing for both sides to present their case to a registrar or judge. A decision will be made then or there may be a further hearing to consider additional evidence.
A company cannot challenge a statutory demand. Here an application must be made to court to restrain you from applying to wind up their company. Again, there will be a hearing at which both parties can present their evidence and based on this the court will decide whether you can present your winding up petition.
Risks relating to the use of statutory demands
Properly used, a statutory demand is a way to prove that an individual or a company cannot pay their liabilities as they fall due and are therefore insolvent. Proving insolvency is necessary if the creditor wishes to petition for the individual’s bankruptcy or the company’s winding up.
However, you must not forget the risk of incurring significant costs if it is likely that your statutory demand will be disputed. If you refuse to withdraw your statutory demand, then you may end up having to pay the debtor’s legal costs for setting aside the statutory demand or for an injunction preventing the presentation of a winding up petition.
Also, you need to consider whether the debtor, be it an individual or a company, has the assets to pay your debt even if it is not disputed.
How has Covid-19 affected the process?
If the debtor is a company then the process will be affected. Initially, measures were put in place whereby statutory demands served to a company between 1 March 2020 and 30 September 2020 could not form the basis of a winding-up petition sented at any point after 27 April 2020. Statutory demands could still be served, provided they are not used for the purposes of presenting a winding-up petition. However, service of a statutory demand without the threat of a winding-up petition would be of limited benefit.
From 24 September 2020, in order to protect businesses from insolvency and to continue to give them a breathing space during the Coviv-19 pandemic the restriction on using statutory demands as the basis of a winding up petition will be extended to 31 December 2020
For more information on Statutory Demands, please call us on 0808 144 5575 or email help@armstrongwatson.co.uk.
