What is a statutory demand?
A statutory demand is a formal written demand for payment of a debt within 21 days. It can be made by any creditor, against a debtor who is an individual or a company, to ask for payment of a debt.
If the debtor does not respond to the demand within 21 days, the creditor can take further legal action, such as applying to bankrupt the debtor (where the debtor is an individual) or issuing a winding-up petition (where the debtor is a company).
The demand must contain specific prescribed information about the debt and the parties involved. If the debtor is an individual and does not agree with the demand, they can apply to the court to set the statutory demand aside. If the debtor is a company, it can apply for an injunction (ie. a court order) to prevent the creditor from issuing a winding up petition.
The rules for serving a statutory demand must be followed to ensure its validity. The statutory demand is a significant step in the debt recovery process, as it can lead to serious legal consequences for the debtor, including insolvency, if not addressed within the specified time frame.
Serving a statutory demand
Serving a statutory demand in England involves following specific legal procedures. Below is a general guide on how to serve a statutory demand in England and Wales:
Draft the statutory demand
When serving a statutory demand, the creditor must ensure the statutory demand includes all necessary information, such as the amount owed, details of the debt, and a clear demand for payment. The information to be contained in the statutory demand is set out in the Insolvency Rules 2016.
Identify the correct debtor
The party making the demand must confirm the accurate legal identity and address of the debtor.
Engage a process server
In England and Wales, statutory demands are typically served by a process server (although it is not compulsory). A licensed and professional process server should be engaged for this purpose.
Personal service of the demand
The preferred method of serving a demand is personal service, whereby the process server personally delivers the statutory demand to the debtor. The demand can be served at the debtor’s residence, place of business, or any other location where the debtor can be found. For statutory demands on a company, the demand can be served (among other ways) by leaving it at the company’s registered office).
Record details of the service
The process server (or whoever served the demand) should complete a Certificate of Service, providing details of when, where, and how the demand was served. This certificate is a crucial document that may be required in legal proceedings.
In some cases, Court permission may be granted to serve the demand by alternative methods, such as email or fax. However, this requires specific court approval, namely an order for service by an alternative method. Such an order is often sought where the statutory demand is addressed to an individual debtor who cannot be located for service, or who is evading service.
The party issuing the statutory demand should keep copies of all documents relevant to service, including the statutory demand itself and the Certificate of Service.
Setting aside a statutory demand (where the debtor is an individual)
To set aside a statutory demand, an individual debtor will typically need to follow a legal process within a specific timeframe.
Receipt of the demand
Upon receiving a statutory demand, the debtor should apply to the court to set aside the demand within 18 days from the date of service.
Review grounds for setting aside a statutory demand
An application to set aside the demand must however be made on legitimate grounds, which do not include the debtor merely being unable to pay the debt. The debtor must show that the debt being demanded is genuinely in dispute, or that the debtor has a counterclaim that equals or exceeds the amount of the debt demanded.
Application to set aside
If an individual debtor wishes to dispute a statutory demand by applying to have it set aside, they need to apply to the Court to do so. This application must be made in accordance with Rule 10.4 of the Insolvency Rules 2016. Before such an application is made however, it is generally wise to write to the creditor setting out the basis on which the demand ought to be set aside and inviting the creditor to withdraw the demand failing which a court application will be made. This will improve the individual’s prospects of obtaining an order for their legal costs if the creditor refuses to withdraw the demand and a successful court application is then made to have the demand set aside.
They must accompany the application with a witness statement that outlines the grounds on which the demand should be set aside; ie. the grounds on which the debt is disputed or the grounds giving rise to any counterclaim. The witness statement should provide evidence supporting the debtor’s position.
The application to set aside must be filed in court within the 18-day time limit from the date of service of the statutory demand. Extensions are hard to obtain, so it is crucial to act promptly.
The application to set aside the statutory demand should be submitted to the relevant court. The court generally then list the application for a hearing.
The creditor will be given an opportunity to file evidence in response to the debtor’s application. At the hearing, the court will consider whether there are proper grounds for setting aside the statutory demand and if the court is satisfied that there are legitimate reasons, it may set aside the demand.
Challenging a statutory demand (where the debtor is a company)
Where a statutory demand is served on a company who wishes to dispute it, there is no formal process in the Insolvency Rules for having the demand set aside. Rather, the company should apply to the court for an injunction restraining the presentation of a winding up petition based on the demand. Please refer to the article on on our website which discusses this procedure in detail.
Grounds for setting aside a statutory demand (individual debtors)
The Insolvency Rules 2016, specifically Rule 10.5, outline the procedures for the hearing of an application to set aside a statutory demand. Under rule 10.5 (5):
“(5) The court may grant the application if—
(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand;
(b) the debt is disputed on grounds which appear to the court to be substantial;
(c) it appears that the creditor holds some security in relation to the debt claimed by the demand, and either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
(d) the court is satisfied, on other grounds, that the demand ought to be set aside.”
How can South Bank Legal assist?
At South Bank Legal our company insolvency and bankruptcy solicitors act for companies and individuals in financial difficulty, as well as creditors seeking to recover debts and protect their position in cases of actual or threatened insolvency.
We can assist debtors in challenging and having a statutory demand set aside, as well as assisting parties with serving a statutory demand.
Our solicitors can provide advice on whether there are valid grounds to set aside a statutory demand. We will assess the specifics of your case and advise on the best course of action. If we believe there are grounds to have the demand set aside, we can assist in preparing the necessary legal documents, as well as representing your case at court.
You can contact South Bank Legal using the form below or telephone 02035765179 for a confidential discussion with a commercial law solicitor today.