What is statutory demand?
A statutory demand is a formal written demand for payment of a debt, served under the Insolvency Act 1986. It affords the debtor 21 days to satisfy the debt or reach a formal settlement.
It is not a ‘court document’ in itself but failure to comply with a statutory demand creates a legal presumption that the Debtor is insolvent. This then allows the creditor to petition the court to either bankrupt an individual or wind up a company.
Why use statutory demand?
A statutory demand does not require court involvement at the outset, making it a cost-effective method as you are not filing a claim in court with a court issue fee. The main costs incurred are for the drafting and service to ensure that the demand is served correctly and can therefore be relied upon.
For many Debtors, receiving a statutory demand is a wake-up call and may force a previously silent Debtor to begin negotiations.
When is it appropriate to use a statutory demand?
A statutory demand is not available for every form of debt, the following criteria must be met:
- The debt must be at least £5,000 for an individual or £750 for a company.
- A statutory demand should only be used if the debt is liquidated (a fixed sum) and not disputed by the Debtor. If the Debtor has a reason for not paying, they can apply to have the demand set aside and you could be at risk of paying their legal costs.
- The debt must generally be less than 6 years old.
Issuing a statutory demand
The demand must be on a specific prescribed form and include details such as the debt owed and grounds for recovery. There are specific rules for service of the relevant documents and response to the same.
If the Debtor has neither paid nor challenged the demand, you may be entitled to present a bankruptcy or winding-up petition.
How can we help?
Given the potential serious implications of statutory demands, seeking legal advice is vital for both creditors and Debtors. Creditors should ensure that their demands meet all of the legal requirements, while Debtors facing a demand should consult with legal professionals to explore their options and potential defences. If the statutory demand is not handled correctly at the outset, it can be costly for the parties involved.
If you have questions about the use of statutory demands, from the perspective of a creditor or Debtor, please contact Laura Mackain-Bremner or Paige Skudder in our Commercial & Private Client Litigation team in Taunton.
Our Commercial & Private Client Litigation team works closely with our Restructuring & Insolvency team on a variety of debt-related matters including winding up petitions and bankruptcy proceedings.
