With all the current doom and gloom the issue of statutory demands is being raised more and more. In this article Anna-Liisa Walden explains that in many cases they are being used as a debt recovery tool and scaremongering exercise.
What are Statutory Demands?
Statutory demands are a mechanism by which the insolvency of a party can be proved under the Insolvency Act 1986. In effect they constitute a formal written demand requiring payment of a specified
sum (which exceeds £750) to be made within the next 21 days.
What is their significance?
If issued, and the party from whom you are seeking payment does not make payment within the 21 days period referred to in the statutory demand, then you (as creditor) can present a petition to the court for either bankruptcy (in the case of an individual) or winding-up (in the case of a company).
What if you receive one?
The key point is that statutory demands should not be used in relation to “disputed debts”.
So, if there is a justifiable reason for non-payment (for instance, the works have not been completed, are defective, the sum claimed is disputed or otherwise) then they should not be used and can be resisted.
However, if you do receive one you will want to take steps to avoid the potential significant consequences. In the event your company has concerns as to the effect of a petition being presented, you may wish to obtain an injunction to prevent the presentation of the petition.
What if you have an undisputed debt?
If however there is no justifiable reason for non-payment then the individual or company will be deemed to be insolvent. Whilst you might wish to pursue the sum through one of the other dispute resolution mechanisms available to you (small claims court, Pre-Action Protocol for Construction and Engineering Disputes, adjudication or otherwise) in the case of someone who has no defence whatsoever and is simply failing to pay, you may wish to consider this as an option. Indeed, you may find that issuing the statutory demand finally results in your unanswered calls and correspondence being returned.
So whilst the courts have usefully held that where a debt is due and an invoice sent and the debt is not disputed then the failure of the debtor company to pay the debt is itself evidence of inability to pay – you do need to exercise caution to avoid being accused of abuse of process.
For any further information, please contact Anna-Liisa Walden.