Setting Aside a Statutory Demand Against a Company

setting aside a statutory demand against a company

What is a statutory demand?

A statutory demand is a formal demand for payment issued by a creditor to a debtor. It is a legal document prescribed by law and is often used in the context of insolvency proceedings and business debts.

When a creditor issues a statutory demand, they are giving the debtor a formal notice to pay the outstanding debt within a specified period, typically 21 days. If the debtor fails to comply with the demand within this timeframe, it can lead to serious consequences, such as the creditor initiating winding-up proceedings against the debtor.

Statutory demands are a crucial step in the debt recovery process, as they provide a clear indication to the debtor of the seriousness of the situation and the consequences of non-payment. They also serve as evidence that the creditor has taken reasonable steps to recover the debt before pursuing legal action in the courts.

Statutory demands must be issued correctly and in accordance with the relevant legal requirements. Otherwise, they may be deemed defective, which can undermine the creditor’s position in subsequent legal proceedings. Therefore, creditors often seek legal advice or assistance when issuing statutory demands to ensure compliance with relevant laws.

Issuing a statutory demand

Issuing a statutory demand is a formal legal step undertaken by a creditor to demand payment of a debt owed by an individual or a company.

The creditor would initially assess and determine that there is a valid debt owed by the debtor. OThe creditor or their legal representative can then prepare the statutory demand document. This document typically includes details such as:

  • The amount owed
  • Basis of the debt
  • Details of the creditor
  • Deadline for payment (usually 21 days from the date of service)
  • Consequences of non-compliance (e.g., initiation of bankruptcy or winding-up proceedings)

The statutory demand must be properly served on the debtor. This can be done through various methods, including delivering the demand directly to the debtor. It’s important for the creditor to keep a record of how the demand was served. This may include obtaining a signed acknowledgement of receipt or a statement of service from a process server.

Once served, the debtor typically has a time limit of 21 days to respond to the debt claimed in the statutory demand. During this period, the debtor can choose to:

  • Pay the debt in full.
  • Negotiate with the creditor regarding a settlement.
  • Have the statutory demand set aside if there are valid grounds to do so, such as a genuine dispute regarding the debt (only an individual may issue an application to set aside a demand, not a company – see below regarding company statutory demand disputes).

If the debtor fails to comply with the statutory demand within the specified timeframe, the creditor may initiate legal proceedings. This could include a bankruptcy petition (if the debtor is an individual) or winding up the debtor’s company (if the debtor is a company).

Issuing a statutory demand is a serious step in the debt recovery process, and it’s essential for creditors to ensure that they follow the correct legal procedures to protect their interests and maintain the enforceability of the demand. Seeking legal advice before issuing a statutory demand can help creditors navigate the process effectively and avoid potential pitfalls.

Setting aside a statutory demand against a company

When a statutory demand is served on an individual, they have the option to dispute the debt and apply to have the demand set aside. Individuals have 18 days from service of the statutory demand to apply to have it set aside.

However, if a demand is served upon a company, there is no formal process to have it set aside.

Instead, a company wishing to dispute a statutory demand, as opposed to negotiating a settlement and paying the debt, may apply for an injunction to stop a winding-up petition against their company.

Before taking the step to apply to the court for an injunction, the debtor may try to resolve the issue with the creditor directly.

If there is time, the company should explain why it disagrees with the debt claim and why winding-up proceedings are not the right way to handle it.

The company should also seek the creditor’s assurance not to start or advertise winding-up proceedings without first giving ample written notice.

If the creditor does not agree to the company’s requests within the given time and insists that it will be proceeding with a winding up petition, the company will, if it wishes to resist the statutory demand, likely have to apply to the court for an injunction to restrain the creditor from preventing a winding up petition.

This court application will need to be accompanied by a detailed witness statement explain the relationship between the creditor and the company, detailing the dispute over the debt, providing evidence of the company’s financial health, and including relevant documentary evidence. A court will usually hear these applications quite quickly and if an injunction is granted restraining the presentation of a petition, the company successfully applying for the injunction would usually obtain an order that the creditor pay its legal costs of the application.


How can South Bank Legal assist?

Our team of commercial solicitors at South Bank Legal are highly experienced in cases involving serving statutory demands, as well as having them set aside. We can assist both individuals and companies who are looking to dispute debts, advising on the best course of action for your circumstances.

Additionally, we provide specialist legal services on a wide range of commercial issues. These include intellectual property disputes, multi-million pound corporate acquisitions, commercial contract disputes and property disputes.

If you would like more legal advice on setting aside a statutory demand against a company 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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