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 escalating.
Read on to learn more about these formal demand letters.
Statutory Demand: Definition
A statutory demand against a company is a formal, legal warning from a creditor, requiring a debt to be settled within 21 days.
It represents an escalation of the situation, in that faciliates the creditor petionining the court in the future to either force an individual into bankruptcy, or a company into compulsory liquidation.
To send a statutory demand to a limited company the creditor must be owed at least £750.
It is defined in Section 123 of the Insolvency Act 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
Statutory Demand Form
A typical statutory demand form can be found for download on the .GOV site here.
Known as SD1 this form is specific for those sending a form to limited companies, and gives clear details to the debtor regarding compliance.
If you’re serving a demand to an individual, you’ll need Form SD2 here.
For statutory demands to be valid, they must served correctly.
Serving a Statutory Demand to a company
- 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 the main place of business if they do 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
Keeping Accurate Records
You must keep accurate records of serving the demand, for example a postage receipt, or confirmation from your process server.
In order to validly serve a Statutory Demand, a creditor must do all that is reasonably possible to bring it to the debtor’s attention, and you will need proof of doing this.
Can You Set Aside a Statutory Demand Against a Company
There is no specific law for setting aside a company statutory demand but they 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 have the statutory demand set aside.
In principle if the company is successful in having the statutory demand set aside then the creditor will have to pay the court fees. Alternatively if the company fails to have the ‘demand’ set aside then the company will pay the courts costs.
What happens if I Don’t Pay
The failure to pay the debt is significant as it is evidence that the company is indeed insolvent as it cannot pay its bills when due. This means the company can be legally wound up and forced into compulsory liquidation.
Legitimate Reasons for Reversing a Statutory Demand
- If a creditor is asking you for a sum less than £750, or the overall figure is disputed
- If you are already paying on instalments and have never been late or missed a payment
- If the creditor owes YOU money
- If you can prove the demand was served in error
- If the creditor already holds debt security for the sum or greater than the debt
- If the creditor failed to use the correct process at any step of the way
What are My Options?
(1) Pay the Debt in Full
This is obviously what the statutory demand is intended to provoke, so if you can pay the debt, you should. The law is there to help creditors escalate their debts until they get paid so if you ignore it, you might find yourself at the receipt of a winding up petition, which could force your company into liquidation.
(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 businesses 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 08000 746 757; email us at email@example.com; use the Live Support at the bottom of the page.