When a creditor is owed £750 or more by a company or £5,000 or more by an individual, and has attempted other debt collection methods without success, the creditor may resort to sending a statutory demand for payment. This procedure requires no court involvement and represents one of the most serious threats that a creditor can make against you or your business.

Here, Sara Beaumont explores what to do if you have been served with a statutory demand.

Act quickly

Individuals served with a statutory demand are at risk of bankruptcy if the debt is either not resolved within 21 days, or an application to the court is not made within 18 days if the debt is disputed.

Limited companies that are in a similar position could also be wound up if an injunction hasn’t been applied for within 21 days to restrain the creditor from presenting a winding up petition. This could lead to the compulsory liquidation of the business, so it is vital to act as quickly as possible.

Don’t bury your head in the sand

A statutory demand is incredibly serious and is something that should never be ignored. The first response to any statutory demand you receive should be to repay the debt in full, if you are able to do so.

Rather than ignoring the statutory demand, those that need time to pay should contact the creditor to see whether a payment plan can be arranged via a company voluntary agreement.

In the case of a disputed debt, the creditor should be contacted and asked in writing for the statutory demand to be withdrawn, alongside your reasoning for disputing the demand.

Court resolution

As an individual, you have the right to apply to the court to have the demand cancelled, as long as you do it within 18 days of it being served. For individuals, the court has the power to set aside a statutory demand on the following grounds:

  • The creditor owes you money which equals or exceeds the amount of the debt specified in the statutory demand
  • The debt is disputed on grounds which appear to the court to be substantial
  • The creditor holds some security for the debt, and either the disclosure of the nature and amount of the debt are not complied with, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt
  • The court is satisfied on other grounds that the demand ought to be set aside.

For a limited company, an application for an injunction to restrain the creditor from presenting a winding up petition may be granted by the court where:

  • There is a genuine dispute about the sum demanded
  • There is a cross claim or set off
  • The creditor has another way to recover the money
  • It would be oppressive or unfair for the company to be wound up.

If the debtor is successful in its application to set aside a statutory demand, or for an injunction to prevent the presentation of a winding up petition, then the court will usually order the creditor to pay the debtor’s legal costs. Depending on the circumstances, these costs can range from around £2,000 to over £10,000.

For further advice on statutory demands or any other debt recovery matter, call Sara Beaumont on 0161 761 4611 or email her at sara.beaumont@whnsollicitors.co.uk