A statutory demand against a company is a formal, legal warning from a creditor, that is sometimes used as a key part of a serious debt claim. Any legal court judgement can be used as evidence of insolvency and this means that a creditor may be able to pursue a bankruptcy petition against the individual in question, or a winding up petition for a 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.
What’s the Statutory Demand Process?
The minimum amount for a statutory demand debt must be at least £750 or more, as laid out in Section 123 (1) (a) of The Insolvency Act 1986.
Once served, it will show the contact details of the person to contact if the debt is to be paid or the person to contact if you dispute the debt in the first instance. Where a company contests the ‘demand’ the company and or solicitor should contact the court denoted on the demand and an injunction should be made to stop the statutory demand.
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.
How Long do you Have to pay?
Once 21 days have passed from the date of the statutory demand the amount claimed should be paid in full or within 18 days of the date the debt should be settled or contested.
Can I Ignore it?
No. You should never ignore a statutory demand as from an insolvency legal viewpoint the non-payment of a statutory demand is evidence of the limited company, or individual’s inability to pay the debt. Once the 21 days have passed the company can be wound up and the individual can be made bankrupt.
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.
Must a Creditor always use a Statutory Demand to claim a Debt?
No. A creditor could have already proven the debt in law by having a claim proved in court such as a county court judgement or other court order. The creditor could simply ask the judge to enforce the original debt order. As long as the creditor is owed more than £750 the company can be wound up and forced into a compulsory liquidation.
Does the Statutory Demand Against My Company Expire?
There is no actual lifespan in law but it is generally accepted that if the demand has not been enacted after 4 months then a judge may question why not.
In general terms under the Limitation Act 1980 means a debt has a shelf life in law of 6 years.
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 installments 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 protected]; use the Live Support at the bottom of the page.