Statutory Demands – pros and cons
A Statutory Demand is a formal demand for payment of a debt. The notice must contain information certain information as to how the debt arose and how much is outstanding. There are also specific rules in respect of information to be provided to the debtor and in relation to service.
In summary, if a debtor fails to comply with a Statutory Demand for a period of 3 weeks, they are at risk of having bankruptcy or winding up proceedings issued against them.
A Statutory Demand is a relatively quick and inexpensive way of exerting pressure on a debtor, when compared to instigating Court action.
There is no involvement from the Court and no issue fee to be paid.
There is no requirement to follow up on the demand even if payment is not made, subject to a potential application to set aside or injunction application (see below). This may be beneficially if it is unlikely to commercially viable to pursue a debt.
The threat of bankruptcy/winding up petition can be very persuasive as if such action is taken it is likely to impact on funding and credit ratings for the debtor.
A Statutory Demand cannot be used if the amount owed is not a specific sum, such as a damages claim.
Although there is technically no minimum debt for a Statutory Demand, the minimum sum for a Bankruptcy Petition is £5,000.00 and a Winding Up Petition is £750.00. If the debt does not exceed these sums, other recovery methods will have to be utilised.
As mentioned above, if a debt is disputed on genuine grounds a debtor will be entitled to apply to set aside the Statutory Demand (for an individual) or make an application for an injunction restraining presentation of a winding up petition (for a business). If such an application is successful, there are likely to be cost consequences for the creditor.
If a Statutory Demand is ignored, the preparation and issuing of a bankruptcy or winding up petition is likely to be a costly process and even if the debtor is made bankrupt or is wound up, there is no guarantee that the debt will be recovered.
Andrew Broadbent is an associate in Keebles litigation and dispute resolution team. He specialises in dealing with commercial disputes in various divisions of the High Court and County Court and is contactable on 0114 252 1416 or firstname.lastname@example.org