How to Deal with a Statutory Demand

how to deal with a statutory demand

What is a statutory demand?

A statutory demand is a formal written notice issued by a creditor to a debtor, demanding repayment of a debt within a specific timeframe, typically 21 days. It is a preliminary step, often used before taking more serious action like issuing bankruptcy proceedings against an individual or issuing a winding up petition agains company.

Statutory demands serve as both a formal payment demand and evidence of insolvency if the debt remains unpaid 21 days after the demand has been served. If the debtor fails to pay or satisfactorily respond within the 21 day timeframe, it strengthens the creditor’s case where the creditor then pursues bankruptcy or winding up proceedings.

Any creditor who is owed money can use a statutory demand as long as the debt meets the minimum amount (£750 for companies and £5,000 for individuals in the UK).

Upon receiving a statutory demand, the debtor has options: they can pay the debt in full within the given timeframe, they can negotiate an arrangement with the creditor regarding a payment plan or they (where the debtor is an individual) can challenge the demand in court and apply  to have the demand set aside if  the debt is genuinely disputed or there are other valid reasons for not paying the debt. Companies can challenge a statutory demand but in a different way; by asking the court to grant an injunction preventing the creditor from issuing a winding up petition off the back of the demand.

If you have received a statutory demand, then it is important you take it seriously and seek advice from a professional in this area of the law. South Bank Legal has a team of experienced commercial solicitors highly experienced in statutory demand disputes. Please get in touch today to find out how we can assist you.

Issuing a statutory demand

Issuing a statutory demand involves several steps:

  • Meeting the Criteria:

The creditor must be owed a debt exceeding the minimum threshold (at least £750 for companies and £5,000 for individuals in the UK). The claim for the debt cannot bemore than 6 years old (although exceptions may exist).

  • Obtaining the Form:

Creditors can download pre-formatted statutory demand forms (SD1, SD2, SD3, or SD4) from various sources, including government websites.

  • Completing the Form:

The form requires details like the creditor’s and debtor’s information, the debt amount, and a clear demand for payment within 21 days.

  • Serving the Demand:

This is a crucial step to ensure the demand can be relied on in any subsequent court proceedings. The creditor has several options for serving the demand, including handing it directly to the debtor. Valid service of a statutory demand on a company includes leaving the demand at the company’s registered office or main place of business.

Often a creditor chooses to use a professional process server to serve the demand.

  • Proof of Service:

It’s essential to retain proof of service of the statutory demand on the debtor, which could be a signed receipt from the debtor, a witness statement, or a certificate from a process server.

It is strongly recommended that creditors consult with a legal professional before issuing a statutory demand, particularly  where they are new to the process or have specific concerns as to whether the statutory demand process is appropriate to to the circumstances of their case.

A specialist solicitor can advise parties on completing the form, effecting valid service  other relevant legal requirements.

How to deal with a statutory demand

If you receive a statutory demand, it is essential to take the matter seriously and consider your options carefully. If you ignore the demand, then it is very possible the creditor will apply for a bankruptcy petition or commence winding-up proceedings. 

The process of responding to a statutory demand will depend on whether the recipient is a company or an individual.

How to deal with a statutory demand as an individual

If you have received a statutory demand as an individual, you should consider paying the debt in full as soon as possible if the debt is not in dispute. You could also come to an agreement with the creditor to pay the debt in instalments.

If you have valid grounds for disputing the debt, such as a dispute over the amount owed or if you believe that the demand was issued improperly, you may challenge the demand by applying to the court to set aside the statutory demand.

However, it is important to note that you will need to provide credible detailed evidence to support your challenge. You must also ensure you apply to set aside the demand within 18 days of the demand being served (if you are an individual).

How to deal with a statutory demand as a company

Again, if a statutory demand is served upon your company and the debt is not in dispute or you have no counterclaim against the creditor that equals or exceeds the amount of the debt, you should generally consider paying the debt, or making arrangements to pay the debt in full or by instalments as soon as possible.

If a demand is served on a company and you wish to dispute the debt, there is no formal route to set aside the demand. Instead, you must apply for an injunction to stop winding up proceedings against your company.

How can South Bank Legal assist?

Our team of commercial solicitors at South Bank Legal are highly experienced and can provide advice on how to deal with statutory demands. Whether you are the creditor or the debtor, our team can assist you.

Our solicitors can provide specialist legal services on a wide range of commercial disputes issues. These include intellectual property disputes, multi-million-pound shareholder disputes, commercial contract disputes and property disputes.

If you would like more legal advice on how to deal with a statutory demand or wish to discuss any of our services, you can contact us using the form below or telephone 02035765179 for a confidential discussion with one of our solicitors.

 

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