Make and Serve a Statutory Demand

Statutory demands are often served by personal service on the debtor as the creditor needs to prove that the demand has come to the debtor’s attention.

If you are served with a demand:

If a valid statutory demand is served on you as an individual and it is not satisfied within 21 days, or if you dispute it and it is not set aside by the court following an application made by you within 18 days, then it could result in your bankruptcy. If you are a limited company and you have not applied for an injunction restraining the creditor from presenting a winding up petition then an unsatisfied demand could result in the winding up of the company. In both cases the creditor needs to demonstrate that an undisputed and unsecured debt of at least £750 for a company and £5,000 for an individual is outstanding 21 days after service of the demand.

Particularly if you dispute the debt or you have a counterclaim or setoff to the amount demanded. Contact the creditor and set out why you dispute the demand in writing and ask them to withdraw it. However, if over £750 for companies and £5,000 for individuals of the demand remains undisputed and unpaid then that is still an act of insolvency/evidence of an inability to pay debts as they fall due and the demand could be relied on by the creditor in insolvency proceedings against you. Often creditors use a statutory demand as a debt recovery tool and will not want to incur the cost of actually petitioning for bankruptcy or winding up if the debtor doesn’t pay. Those costs to the creditor can be in the thousands and will not be recovered by the creditor if the debtor really is balance sheet insolvent. If the debtor will not agree to withdraw the demand in writing then

If you are an individual. The statutory demand should specify the correct court for you to make that application to. If you are a company and the demand and/or threat of the presentation of a petition will not be withdrawn, then you must apply for an injunction restraining the creditor from presenting a winding up petition. Please note, a statutory demand is not always required before the creditor can present a winding up petition. For individuals the court has the power to set aside the demand on the following grounds:

1. the debtor appears to have a counterclaim, set-off or cross-demand which equals, exceeds or reduces the amount of the debt or debts specified in the statutory demand to the threshold of £5,000 or below; or
   the debt is disputed on grounds which appear to the court to be substantial and reduces the amount of the debt or debts specified in the statutory demand to the threshold of £5,000 or below; or
   it appears that the creditor holds some security in respect of the debt claimed by the demand and either the statutory provisions relating to the disclosure of the nature and amount of the debt are not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt;or
2. the court is satisfied on other grounds that the demand ought to be set aside.
   For companies, and on an application for an injunction, the court will consider, amongst other things, whether there is a genuine dispute about the sum demanded and/or whether there is a cross claim or set off, whether the creditor has another way to recover the money and whether it would be oppressive or unfair for the company to wound up.

If the debtor is successful in its application to set aside a statutory demand or for an injunction to prevent the presentation of winding up petition then it is almost inevitable that the court will order the creditor to pay the debtor’s legal costs. Depending on the circumstances these costs can range from £1,000 to over £10,000. Debtors may find that they’re unable to fund such legal costs even if they are ultimately paid by the creditor. However, it may be possible for the debtor to find a solicitor who will act for them on a no-win no-fee agreement.

• Act fast to avoid missing the deadline
• Consult a solicitor with experience in dealing with statutory demands
• Ask for a no win no fee

A creditor who serves a statutory demand for a disputed debt takes a big risk on costs if they do not withdraw it when the debtor has raised a dispute/defence.

Don’t consider using a statutory demand instead of a county court claim unless the debt really is undisputed. Statutory demands are not supposed to be used as a debt collection tool. In reality many creditors use them exactly in this way.

Do remember that if a creditor persists with a statutory demand and the debtor gets the demand set aside or an injunction against the presentation of a winding up petition then the court is likely to hammer the creditor in costs even if the creditor subsequently wins the dispute/counterclaim in normal proceedings.

Do, above all, take some advice from a solicitor at Helix Law before serving a demand.

When the statutory demand has been served the creditor will be entitled to petition for a bankruptcy order against an individual, or for a winding up petition against a company after 21 days. Therefore anyone who receives a statutory demand must take steps to address that demand within 18 days or risk a petition being issued. For an individual where the debt is disputed it is usually appropriate to request that the creditor agrees to withdraw or discontinue the statutory demand.

Otherwise, if there is no agreement, the individual debtor should apply to the court for an order (and their costs) seeking the set aside of the statutory demand. In the case of a company initially the company should request undertakings that the creditor will not issue or advertise a petition failing which the company will need to obtain an injunction order from the court preventing the creditor from issuing a petition or advertising a petition.