What is a statutory demand UK?
A statutory demand is the first legal step to making a debtor bankrupt, if the debt is for £5,000 or more. A statutory demand is capable of being served as soon as the debt is due. If a creditor is owed money and wants the debt paid quickly, taking legal advice on serving a statutory demand is recommended.
How long does a statutory demand last?
In addition, if a debtor receives a statutory demand, it is imperative specialist legal advice is sought as soon as possible because you only have 18 days from the time of service to seek the Court’s permission to set aside the statutory demand. Should you apply outside the mandated time period, the application to set aside the statutory demand will only be listed at the Court’s discretion.
What is a statutory demand?
A statutory demand is in essence a demand for payment of a debt served upon an individual in accordance with s. 268(1)(a) Insolvency Act 1986. It is a document served by a creditor upon a debtor that is intended to prove that the debtor owes the specified sum of money.
Although serving a statutory demand does not involve the court (and there are no court fees to pay), a creditor must still follow the correct rules of service, as incorrect service could be fatal to the debt claim.
The statutory demand is intended to be relied upon in further legal proceedings against you (to bankrupt an individual) and which ought to:
- provide details of the financial claim, with interest calculated to the date of the demand;
- be served on you as debtor personally or by post; and
- tell you what to do to comply with the demand, have it set aside and the consequences of doing neither.
Consequences of not complying with a statutory demand
If the debtor does not pay the debt (of or more than £5,000) within 21 days of being served the statutory demand, they are at risk of the creditor issuing bankruptcy proceedings against it because an unpaid (and unchallenged) statutory demand is evidence of a debtor’s inability to pay its debts.
A creditor can then present a bankruptcy petition against the debtor if:
- the debtor is unable to, or has no reasonable prospect of paying the debt e.g. the debtor has neither complied with nor set aside the statutory demand and at least 3 weeks have passed since the statutory demand was served; and
- the debt is for a liqudated sum of £5,000 or more.
Why serve a statutory demand?
Creditors often serve a statutory demand as a potentially more cost-effective and speedier method to ensuring the debtor pays the debt rather than instigating court proceedings (initially anyway). Preparing and serving the statutory demand (depending on the quantum of the debt and the facts of an individual case) could potentially be done relatively quickly (with the cost of a process server included). Given that this process does not involve the Court, there are no added court fees or delays seeking listings of applications (unless the debtor challenges the statutory demand e.g. if the debt is disputed).
A statutory demand starts the time running for a debtor to honour its debts, as once served, the debtor has 21 days within which to pay the debt.
Moreover, a statutory demand carries a threat of bankruptcy (or winding-up if served upon a company), and could focus the mind of a debtor to ensure re-payment of the sums is expedited or engage in settlement negotiations.
What are the disadvantages for a creditor serving a statutory demand?
A statutory demand can only be served if the debt is for £5,000 or more (for an individual).
A creditor must consider ongoing trade relationships and consider whether serving a statutory demand would affect its business relationship with the debtor.
A creditor cannot serve a statutory demand for an liquidated debt i.e. a debt for as yet an unknown or unquantifiable sum.
If the debt is disputed on genuine grounds, there are significant risks to a creditor of serving a statutory demand as normal court proceedings would instead be the proper forum to hear the dispute.
Although (depending on the facts of the case) serving a statutory demand is not overly expensive (compared to litigation), if the debtor cannot pay, then the next step is to present a bankruptcy petition against them, which will increase costs. There are specific rules for serving a statutory demand and presenting a bankruptcy petition, therefore it is important to seek legal advice at the outset, because if a mistake is made in service, then this will delay or even prevent the re-payment of the debt as well as mean you could be liable for the debtor’s legal costs in defending the claim.
Instruct Specialist Statutory Demand Solicitors
We provide a no cost initial case review to establish whether or not we can help you. We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inns of Court adjacent to the Royal Courts of Justice. We are experts in dealing with matters surrounding insolvency in particular issues. Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending bankruptcy petitions vigorously at the Bankruptcy Court, at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.