Statutory demands are written warning letters sent by creditors and a necessary precursor to either bankrupting a debtor or petitioning to wind up a limited company.
If your company has been served a statutory demand, you need to take it seriously. Prompt action and clear communication with creditors may prevent the situation from escalating.
Read on to learn more about these formal demand letters.
A statutory demand against a company is a formal, legal warning from a creditor, requiring a debt of at least £750 to be settled within 21 days[1]Trusted Source – GOV.UK – Make and serve a statutory demand, or challenge one.
It represents an escalation of the situation, in that it facilitates the creditor petitioning the court in the future to force a company into compulsory liquidation.
It is defined in Section 123 of the Insolvency Act 1986 in the section ‘Definition of Inability to Pay Debts.’ as follows:
If a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company’s registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor.
Example
Imagine your company supplied office furniture to another company, but they haven’t paid the invoice for £1,000. After multiple attempts to collect the debt, such as sending reminder letters and making phone calls, you could consider issuing a statutory demand.
Serving a Statutory Demand
For statutory demands to be valid, they must served correctly.
It should be given in person to the company’s director, company secretary, manager or principal officer.
It can be left at the registered office of the company or partnership that owes money (or at the main place of business if it does not have a registered office).
It can only be sent by post if it’s not possible to deliver it in person.
You can use a ‘process server’ if you can’t go in person. This is a legally appointed agent your solicitor could arrange who can deliver the paperwork for you.
Obtain proof of service whenever possible. This could be in the form of a signed acknowledgement of receipt from the recipient or an affidavit of service from a process server. Proof of service is crucial if the demand is later contested.
Keep detailed records of all steps taken to serve the statutory demand. This includes dates, times, and methods of service, as well as any correspondence with the recipient.
Consequences of Ignoring a Demand
Ignoring a statutory demand can have serious repercussions for your company. If you fail to address this formal notice within 21 days, you’re essentially opening the door to serious legal actions.
The most immediate consequence is that your creditor can petition the court to wind up your company. This isn’t a mere threat; it’s a very real possibility that can swiftly lead to the end of your business. Once a winding-up petition is issued, your company’s bank accounts will be frozen, making it nearly impossible to continue trading.
Further potential consequences of inaction include:
Damage to your business and personal credit rating
Even if you believe the demand is unjustified, ignoring it is never the right course of action. You must respond, whether by paying the debt, reaching an agreement with the creditor, or applying to the court to contest the demand if you have valid grounds.
Can You Set Aside a Statutory Demand Against a Company
There is no specific law for setting aside a company’s statutory demand, but you are allowed to contest the debt the same as any individual. You will need to prove it is a genuine dispute and not a delaying tactic, and you are likely to need a lawyer to proceed.
In principle, if the company is successful in having the statutory demand set aside, then the creditor will have to pay the court fees.
What are The Options After Receiving a Statutory Demand?
(1) Pay the Debt in Full Or Negotiate with the creditor
This is obviously what the statutory demand is intended to provoke, so if you can pay the debt, you should.
(2) Negotiate a Payment Plan with Creditors
By accepting your responsibility to pay the debt, while explaining your inability to settle it all at once, many creditors are open to a payment in instalments.
(3) Consider an Insolvency Proceeding such as:
Company Voluntary Arrangement – A Company Voluntary Arrangement is a process whereby an IP helps you negotiate a long-term payment plan with creditors while protected from further creditor action by a legal ring-fence.
Administration – Administration allows larger companies to be restructured by an Insolvency Practitioner while protected from legal action, with the goal of turning the business’s fortunes around.
Voluntary Liquidation – If the statutory demand brings with it the realisation that your company is insolvent, you may wish to voluntarily liquidate while you still can. Once a winding up petition has been delivered, this possibility will have vanished and you will have even less control over your future.
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 on 0800 074 6757; email us at info@companydebt.com; use the Live Support at the bottom of the page.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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