Receiving a statutory demand can be daunting for any UK company director or small business owner. It is a serious legal instrument under the Insolvency Act 1986, signalling a significant escalation in a creditor’s attempt to recover a debt.
Understanding your options and having a strict 21-day deadline to address the demand are vital.
This guide aims to demystify statutory demands, explaining their legal significance and the crucial steps you need to take. Professional advice can be invaluable in navigating this complex area, ensuring you make informed decisions to protect your company’s future.
A statutory demand is a formal legal notice under UK law used by creditors to demand payment of a debt exceeding £750. It serves as a serious warning that unresolved debts can lead to a winding-up petition and potentially result in the compulsory liquidation of your company. The statutory demand acts as prima facie evidence of insolvency, demonstrating to the court that your company may be unable to pay its debts as they fall due.
Receiving a statutory demand indicates significant steps by a creditor to recover what they are owed. This document is not just another reminder but a critical legal instrument requiring immediate attention. Ignoring it can have severe consequences, including the possibility of your company being wound up and liquidated through court proceedings. Therefore, directors and business owners must act promptly upon receipt of such a notice to avoid further legal complications.
When and Why Statutory Demands Are Issued
Creditors issue statutory demands as a final step before legal action to recover debts. They are often used for unpaid invoices, overdue loans, unsettled rent payments to landlords or outstanding tax liabilities. Any creditor, individual or business entity, can issue a statutory demand if the debt exceeds £750 and is due for payment.
Creditors choose this route because a statutory demand is a formal warning with serious consequences if ignored. It acts as prima facie evidence of insolvency, supporting a winding-up petition.
Issuing a statutory demand signals the creditor’s intent to escalate the matter legally, compelling the debtor to address the debt promptly or face potential liquidation proceedings.
Consequences of Ignoring a Statutory Demand
Ignoring a statutory demand can lead to severe legal consequences, including the potential for a winding-up petition. If a company fails to address the demand within 21 days, the creditor may petition the court to liquidate the company. This is not merely a threat but a real possibility that can result in compulsory liquidation, effectively ending the business.
The implications for directors are significant. The company’s closure could mean a loss of livelihood and reputation. Moreover, directors might face personal liability if found guilty of wrongful trading (continuing business operations when insolvency was inevitable), which can lead to personal financial repercussions.
Here is a brief checklist of risks associated with ignoring a statutory demand:
Winding-up Petition: Initiated by creditors after 21 days, leading to potential liquidation.
Compulsory Liquidation: Court-ordered dissolution of the company.
Personal Liability: Directors may be held personally accountable for debts if wrongful trading is proven.
Reputational Damage: Public knowledge of financial distress can harm future business prospects.
The urgency to act cannot be overstated. Promptly addressing a statutory demand is crucial to mitigate these risks and safeguard both personal and business interests.
How to Respond to a Statutory Demand
To respond to a statutory demand, act promptly and verify the debt’s validity. Check the amount and creditor details and confirm whether the debt is genuinely owed. Gather supporting documents like invoices or correspondence to dispute the claim if discrepancies arise.
You have 21 days from receipt to respond. Here are your options:
Pay the Debt: If the debt is valid and funds are available, paying it off can swiftly resolve the issue.
Negotiate a Settlement: Contact the creditor to discuss possible repayment plans or settlements. Demonstrating willingness to resolve the matter can sometimes prevent further legal action.
Dispute the Demand: If you believe the debt is incorrect or unjustified, you can apply to court within 18 days of receiving the demand to set it aside. Prepare evidence such as payment receipts or proof of disputes over goods or services.
Seeking professional advice early is advisable. A licensed insolvency practitioner can provide tailored guidance, helping you navigate complex legal processes and explore options like Company Voluntary Arrangements (CVAs) if needed. Ignoring a statutory demand can lead to severe consequences, including winding-up petitions, so timely action is essential.
The Role of a Licensed Insolvency Practitioner
A licensed insolvency practitioner (IP) is essential for company directors facing a statutory demand. They provide expert guidance on financial distress and help assess the most suitable options for your business. Engaging an IP early offers reassurance and clarity, as they evaluate your company’s economic situation and recommend appropriate solutions.
Key Services Provided by an Insolvency Practitioner
Assessment of Financial Health: An IP thoroughly reviews your company’s finances, helping you understand the full extent of your financial obligations and potential risks.
Company Voluntary Arrangements (CVAs): If your company is viable but struggling with cash flow, an IP can propose a CVA. This legally binding agreement allows you to repay creditors over time while continuing to trade.
Negotiated Settlements: An IP facilitates negotiations with creditors to reach an amicable settlement, potentially avoiding further legal action and preserving business relationships.
Insolvency Procedures: Should formal insolvency be unavoidable, an IP guides you through administration or liquidation, ensuring compliance with legal obligations and minimising personal liability
Consulting with a licensed insolvency practitioner provides access to these services and offers peace of mind. Their expertise helps you make informed decisions, potentially safeguarding your business from severe consequences. Each situation is unique; therefore, seeking personalised advice is always recommended.
Do You Need Free, Confidential Statutory Demand Advice?
If you have received a Statutory Demand against your company, please contact us to find out what can be done about it: 0800 074 6757; email us at info@companydebt.com; or use the Live Support at the bottom of the page.
Statutory Demand FAQs
Can a creditor reissue a statutory demand if the first one is set aside?
A creditor can reissue a statutory demand if the court sets aside the first one. They must address any issues that led to the original demand being set aside, such as correcting errors or providing additional evidence supporting the debt claim.
Can the demand be served in person, or can it be sent electronically?
A statutory demand does not have to be served in person. It can be delivered via post to the company’s registered office. Electronic delivery is not typically accepted unless explicitly agreed upon by both parties, as traditional methods ensure legal compliance and proper documentation of service.
Can I ignore a statutory demand if I believe the debt is incorrect?
Ignoring a statutory demand is not advisable, even if you believe the debt is incorrect. You should formally dispute the demand within 18 days by applying to the court to have it set aside, presenting evidence that challenges the validity of the debt claim.
What if I’m already in a Time to Pay arrangement with HMRC?
If you are in a Time to Pay arrangement with HMRC, inform them immediately upon receiving a statutory demand. They may reconsider their position or confirm that the arrangement remains valid. Communication is key to preventing further legal action while maintaining your existing agreement.
Can multiple creditors issue separate statutory demands at the same time?
Yes, multiple creditors can issue separate statutory demands simultaneously if each creditor is owed more than £750. Each demand must be addressed individually, and failure to respond appropriately could lead to multiple winding-up petitions against your company.
What if my company isn’t trading but hasn’t been dissolved?
Even if your company has ceased trading but has not been formally dissolved, it remains liable for outstanding debts. Receiving a statutory demand means you must address it promptly by settling the debt or applying for it to be set aside, as ignoring it could lead to compulsory liquidation.
Do I need a solicitor or an insolvency practitioner to dispute a statutory demand?
While having a solicitor or insolvency practitioner is not legally required when disputing a statutory demand, professional advice is highly recommended. They can provide expert guidance on preparing your case and ensure all legal procedures are correctly followed, increasing your chances of successfully setting aside the demand.
