A statutory demand is a formal request for payment of a debt.
If an individual is owed monies, known as a ‘creditor’ they may seek to recover those monies by way of a statutory demand. Once the ‘debtor’ is in receipt of a statutory demand, they have 21 days to settle the debt or reach an agreed payment plan. If the debtor doesn’t act before the deadline, the creditor can commence bankruptcy proceedings (for an individual), or a winding-up petition (for a company).
This process is used to put pressure on a company to satisfy their debt to another company or individual. A statutory demand does not expire, if the debt is not satisfied after the 21 day period, there is a right to file a petition to wind-up the company and the requirement to pay the outstanding fee still stands.
When is a statutory demand issued?
Usually, if there is an undisputed and outstanding sum of money, such as an invoice, which has not been paid.
For example, if your company provides a service to another company or individual at an agreed sum of money, and you don’t receive the agreed funds because the company is experiencing financial difficulty, you could seek to recover the outstanding money by issuing a statutory demand.
How does it work?
The first step would be to send a letter informing the company of their outstanding debt.
If there is no response after this, a solicitor can send a statutory demand on your behalf to seek the recovery of this debt.
Pros and cons
Often a company or individual who has been served with a statutory demand refuses to comply.
You must remember that recovering a debt through a statutory demand is only available where there is no genuine dispute against the sum of money due and owing.
In many cases it is a quicker, cheaper and easier way of recovering an outstanding debt; as a winding-up petition can be costly, and fees are not always recoverable.
On the other hand, the debt does not always justify the costs of a winding-up petition, eg a company with relatively few assets will have these split between all its creditors. The cost of the process may not justify the recovery of the debt.
The most successful cases of debt recovery through a statutory demand are usually when the outstanding monies are not disputed, and the debtor company has sufficient assets to settle the debt, if the creditor were to go through with a winding-up petition.
Statutory demand proceedings must be properly carried out as failure to withdraw an incorrectly issued demand, may result in the debtor seeking injunctive relief. This would set aside the statutory demand, prevent the dismantling of company assets, and you may be held liable for the legal costs incurred by the debtor if they are successful.
If you wish to issue a statutory demand, it is advisable to take proper instruction from a solicitor.
Article written and contributed by Emily Herbertson, Neath Raisbeck Golding Law
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. It is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered above, please speak to Neath Raisbeck Golding Law directly