What is a Statutory Demand and When Can You Use It?

The issue of enforcing costs involves considering and seeking an appropriate method to satisfy a creditor’s debt, whether you have already obtained a court judgment or not.

There are several ways to enforce a debt and consideration needs to be given to which method is the most suitable one to undertake on the facts of the particular case. If you are a creditor who has unsuccessfully attempted to collect your debt from the debtor, using a Statutory Demand may be an option.

What is a Statutory Demand?

A statutory demand is a written demand from a creditor to the debtor. In such a demand, the creditor will warn the debtor that unless the debt is cleared, the creditor may start court proceedings against the creditor to make them bankrupt or wind up a company.

It may be issued against a company or individual who owes the creditor money.

What is the procedure?

Upon receiving the statutory demand, the debtor then has 21 days in which to respond to the creditor with a proposed payment plan or satisfy the debt. A statutory demand is a clear warning to the debtor that further steps can be taken by the creditor to enforce their outstanding debt.

If the debtor does not respond within the prescribed 21 days, the creditor may start proceedings to make the debtor bankrupt. If the statutory demand has been issued against a company, the creditor may start proceedings for a winding up order against the company.

This is undoubtedly an aggressive step to take but may be necessary in the absence of any substantive response or payment from the debtor.

The creditor has 4 months in which to apply to commence bankruptcy proceedings against an individual or wind up order against a company.

The debtor then has 18 days in which they can challenge the bankruptcy proceedings or winding up order. If the debtor challenges a statutory demand, they are essentially requesting the court to ‘set it aside’.

Rules for using a Statutory Demand?

It seems straightforward enough but there are rules to keep in mind when considering the use of a statutory demand:

• You can only start bankruptcy proceedings against an individual if they owe you £5,000 or more
• You can only start a petition to wind up a company if it owes you £750 or more
• Different rules apply if you are issuing a statutory demand on an individual or company overseas
• In light of the pandemic, there are current restrictions in place for using statutory demands

A statutory demand normally needs to be served personally and you will need proof of service.

It cannot be used if the debt is disputed and that is why sometimes it will only be used after obtaining a county court judgment to avoid it being challenged.

Statutory Demands during COVID-19

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020 was introduced by the Government in June 2020 in order to deal with the unprecedented effects of the pandemic. In a bid to control aggressive debt recovery action such as a statutory demand, the Government placed restrictions on statutory bans and winding up petitions. This was done in order to allow breathing space for businesses to navigate against a backdrop of a harsh economic climate brought on by the pandemic.

These restrictions are currently in place until 31st March 2021. It remains to be seen whether these will be extended yet again.

If you or anyone you know requires legal advice in relation to enforcing cost or the impact of the recent legislation on you or your business, contact our Dispute Resolution team on 0330 822 3451 who can offer expert legal advice and is committed to resolving your concerns.