The Risks of Ignoring Statutory Demands: What To Know
A Statutory Demand is one of the key stages in the process of insolvency. Statutory demands can lead to bankruptcy of an individual and the winding up of a company. They are a normal type of debt recovery. Given the serious consequences that can follow receipt of a statutory demand, it is very important that you don’t ignore it if you are served with one, either as an individual or a company.
The window for response is reasonably brief – 18-21 days – so a reply to the notice/demand must be considered and dealt with quickly if any further court action is to be avoided. There are various options open to a debtor such as to come to an arrangement with the creditor, or to set out why the demand is disputed. If there is no agreement or undertaking to discontinue the demand formal steps in court can be necessary to avoid a petition for winding up or personal bankruptcy being issued. Given the serious implications that can follow these notices, inaction is not an option.
Take professional advice if you are not aware of your options, especially if you dispute the debt. There are likely to be various ways we can assist you. If you have been served with a Statutory Demand, contact Helix Law now to discuss your options.
Should You Ignore Statutory Demands?
Being served with a Statutory Demand is an initial stage in the process of insolvency. Ignoring this notice will be taken as evidence in court later of either your refusal to pay, or your inability to pay. If you do this, you can be declared bankrupt or your company can be wound up by the court at a hearing. The impact and consequences can therefore be serious.
Ignoring a Statutory Demand will often set in motion a chain of adverse and negative consequences. This is why serving a Statutory Demand is such an effective debt recovery tool for a frustrated creditor who is not having much luck retrieving their money.
What Are the Risks of Ignoring a Statutory Demand?
Unfortunately ignoring a Statutory Demand is more common than you might think.
Receiving a Statutory Demand can cause stress and anxiety and it can be difficult or embarrassing for the recipient to share this with family or seek professional advice.
However, to ignore a Statutory Demand is an incredibly high-risk strategy- effectively head in the sand. Doing nothing risks allowing several possible courses of action by the creditor through the courts.
So, what are the risks to the debtor?
Winding Up Your Company
A Statutory Demand issued to a business which is ignored after the stipulated 21 days will allow the creditor to start insolvency proceedings to wind up your company.
This alone will immediately seriously impact a company’s credit rating.
Before the court make any order on a petition (to wind up) being issued, the starting point is that all company bank accounts will immediately be frozen and goods and services may longer be supplied. Credit accounts are likely to be frozen or terminated. Worse still the mere presentation of a petition to wind up can amount to breach of other contracts, such as any leases. Often the presentation of a petition will be defined as an ‘Event of Default’ even before the court has made any winding up order.
For companies who receive a statutory demand the impact of a petition are so severe that it is extremely important any demand is dealt with proactively immediately upon it being received. We frequently become involved at the stage the demand is received, acting for the alleged debtor to challenge validity and to protect the company from any petition ever being issued. Often we will issue urgent court proceedings (injunction applications) to prevent petitions being issued. We frequently act in these types of court proceedings.
Making an Individual Bankrupt
An individual who ignores a Statutory Demand, either by not paying the debt or making a mutually acceptable arrangement with the creditor, is at risk of being ordered bankrupt.
Bankruptcy means that all of your assets will belong to a Trustee in Bankruptcy who will sell them and distribute payments to your creditors.
The implications of bankruptcy are far-reaching and will affect your ability to find credit, take out a mortgage, or arrange insurance, so bankruptcy should always try to be avoided.
Costs and Expenses
Allowing the wheels to be set in motion, either for winding up your company or a move towards personal bankruptcy, will incur significant legal costs if you decide to challenge or amend this further down the line at a court hearing.
Obtaining legal advice at the point at which you are served with the Statutory Demand is ultimately far cheaper than only doing so later when it can often be too late. It is likely to save you money in the long run by finding an effective course of action with your professional adviser.
The two key actions on receipt of a Statutory Demand are to not ignore it, as time is critical, and to take professional advice on your options which will allow you to make an informed and appropriate response to your creditor. This is relevant to your personal circumstances or your company situation.
What Are the Alternatives for the Debtor on Receipt of a Statutory Demand?
The first option is to pay the debt off in full and close the matter. Alternatively, the creditor may be willing to come to an arrangement with the debtor for payment to be made by installments – this is called a negotiated settlement. Where a demand is valid and is admitted we will sometimes be instructed to try to negotiate a settlement with a creditor on behalf of the debtor individual or company. This can be possible not least because often a negotiated settlement will be a better outcome for the creditor than bankruptcy or winding up of the debtor company.
The debtor may dispute the amount owed in the statutory demand. Where there are genuine triable issues in dispute, a threshold which is relatively low, we can apply to the court to set aside the Statutory Demand received by an individual.
In the case of a company where the Statutory Demand is disputed and a creditor will not give undertakings, we will apply to the court for an injunction to prevent the issuance of a winding up petition.
Both the above processes result in any further action being frozen whilst the dispute between the two parties is resolved. This action must be taken within 18 days of receipt of the Statutory Demand at the very latest In practical terms we need to be instructed much sooner so that we can contact the creditor urgently to try to avoid the need litigation.
If a creditor acts unreasonably and we need to apply to the court either to set aside the Statutory Demand (on behalf of an individual) or to seek an injunction (on behalf of a company) we typically seek to recover our costs in addition, including from the creditor.
Are There Any Risks to the Creditor?
The main risk to the creditor is that, despite issuing a Statutory Demand, they still may not get their money and will have to engage in expensive legal proceedings in court to either wind up the company or start proceedings for bankruptcy. The creditor has to bear these costs irrespective of whether the debtor can repay them.
If the sum owed to the creditor is not very large then it can be a costly strategy to issue a Statutory Demand as a way to claim the money. If the debtor does ignore it then the creditor will have to commence proceedings for winding up the company or personal bankruptcy against an individual, with the costs coming out of their own pocket.
We act for both creditors drafting and serving statutory demands and for debtors including individuals and companies who have received them.
Contact Helix Law
Don’t put your head in the sand if you find a Statutory Demand on your doormat: take legal advice and respond quickly.
A Statutory Demand is formal notice that proceedings may be commenced against you. Professional advice can save you money and heartache later on and help you establish the best course of action for your personal situation, or for your company. We are often able to review the underlying transaction and/or look for technical arguments to challenge these types of debt recovery tools which are often used inappropriately simply because of the fear they create where say someone is concerned they might be made bankrupt or the company might be wound up.
Get in touch with our specialist team for quick and effective advice. There are nearly always steps that we can take to help, and can advise you of your options.