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What Are the Grounds for Setting Aside a Statutory Demand?

A Statutory Demand is a potent tool for collecting unpaid and undisputed debts. Without going to court, a creditor can serve a Statutory Demand on an individual, a company, or a partnership in an attempt to recover legitimate outstanding debts.

A Statutory Demand tends to follow either a prolonged period of frustration on behalf of the creditor where other attempts to recover a debt have failed. It can also be the prelude to the formal winding up of the company that’s unwilling (or unable) to pay an outstanding debt. It is critical to remember that it is not a general debt recovery procedure. it only applies where the debt is unsecured and undisputed. 

There are clearly defined circumstances, outlined below, where the recipient of a Statutory Demand can apply to have it set aside by the Court. 

Prompt action is crucial due to the short timeframe to dispute a Statutory Demand.

Taking immediate legal guidance is strongly advisable to avoid the many pitfalls of responding to a Statutory Demand.

How Can You Have a Statutory Demand Set Aside?

Any individual or company that receives a Statutory Demand can apply to the court to have it set aside under rule 10.4 of the Insolvency Rules 2016.

Swift action is imperative as there is only a short timeframe of 18 days from receipt of the demand in which to act and get the application to set aside to the appropriate court. 

Failure to respond or pay the debt can result in the creditor applying to make you bankrupt or wind up your company.

When Must You Apply To Set Aside a Statutory Demand?

You must apply within 18 days from the date the creditor served the Statutory Demand. 

The Court may consider an application to set aside a Statutory Demand outside the 18-day time limit under some extenuating circumstances. Normally, this will only be an option if the creditor has not yet applied to bankrupt an individual or requested a winding up petition against a company.

What is the Application Process To Have a Statutory Demand Set Aside?

Establish Whether There Are Legitimate Grounds to Set Aside the Statutory Demand

The Court can set aside a Statutory Demand pursuant to rule 10.5(5) of the Insolvency Rules 2016 if any of the following criteria apply:

  • You have a genuine dispute with the creditor about the debt, which the Court can see is legitimate. For example, you withheld payment because you have not received goods ordered from the creditor
  • The debtor has a counterclaim against the Creditor that, if successful, would reduce the sum demanded below the statutory threshold (£10,000 for companies and £5,000 for individuals)
  • The Creditor holds security connected to the specified debt and the Court is satisfied that the security’s value equals or exceeds the total sum of the debt. Or in the alternative, rule 10,1(9) is not complied with
  • The Court determines that the demand should be set aside on other grounds

The Court also has the power to set aside a Statutory Demand if the Demand has not been correctly issued. 

There is also a financial threshold below which a creditor cannot issue a Statutory Demand:

  • For individuals, the debt must be £5,000 or greater
  • For a company or limited liability partnership, the debt must be £10,000 or greater

Should the debt not meet or exceed the threshold, the Court will set aside a Statutory Demand.

Establish Which Court to Apply to

The Statutory Demand itself must contain the appropriate information about applying to have it set aside. You should make the application to the Court detailed in the document.

The Insolvency Act Application Form

Completing the application form can be tricky and needs to be done correctly. 

It is essential to include all the relevant information such as the date you became aware of the Statutory Demand and the grounds for dismissing the demand including any supporting evidence.

The Witness Statement

Rule 10.4 (6) states that the Set Aside Application must be supported by a witness statement.

The Civil Procedure Rules have specific requirements for a witness statement. It is advisable to take expert advice when drafting a statement.

A witness statement must contain the name of the case and the claim number, detail the full name and address of the witness, and set out the supporting evidence clearly and cogently in numbered paragraphs.

The statement should always finish with the prescribed form of words as laid out in the Civil Procedure Rules which confirms the truth of the facts stated. The witness must sign and also date their signature.

Attending a Hearing

An application to set aside a Statutory Demand which the Court supports will result in a hearing. You will receive a notice of the hearing date from the Court, and this will also detail the location and time of the hearing.

If you don’t attend the hearing, the Court will automatically dismiss the application to set aside the Statutory Demand.

What Are Your Options if Your Application To Set Aside a Statutory Demand Is Dismissed?

A Court can dismiss the application to set aside the Statutory Demand if it considers it to be without foundation. In this instance, the time limit for the debtor to comply with the original Statutory Demand will start running again from the date the Set Aside Application is dismissed.

If the Court dismisses the Set Aside Application, the creditor can immediately apply for a bankruptcy order. You can ask the court to delay this if you can pay the debt but need more time or wish to take advice.

The court will usually agree to this if you can demonstrate a debt repayment plan which is acceptable to the creditor and repays the debt quickly. 

Evidence may be required to support the debt repayment plan. For example, if you are selling a property to clear the debt, you may need to demonstrate that you have a buyer, that the property is under offer and the anticipated completion date.

If a company applies to have a Statutory Demand set aside and the application is dismissed then the creditor can petition the Court to have the business wound up. This can only be halted by making an agreement with the creditor to repay some or all of the money owed.

One of the primary concerns for the applicant is that they will be held liable for the court costs and the creditor’s costs if their application to set aside a Statutory Demand is dismissed. Such additional expenses may make a debtor’s already precarious financial situation far worse.

An application to Set Aside a Statutory Demand should only proceed based on sound legal advice as dismissal will worsen the applicant’s position. It is highly inadvisable to use it as a delaying tactic for the reasons outlined above. 

A successful application to set aside a Statutory Demand will require the debtor to continue negotiating with the creditor about the debt. 

Any default by the debtor on agreed terms or an installment plan could lead the creditor to petition for bankruptcy at a later date.

Conclusion

If you receive a Statutory Demand and want to dispute the debt or set it aside for another valid reason, time is of the essence. Expert legal advice is crucial to ensure that you have a legitimate basis to challenge the Statutory Demand and that the application is correctly presented to the Court.
Helix Law’s specialist commercial team offers advice to those who wish to challenge Statutory Demands or issue them to recover unpaid debts. Taking a holistic view of the dispute and offering expert guidance is essential to a creditor or debtor achieving the right outcome.

Posted by:

Alex Cook
Solicitor

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