Statutory Demand

As an individual or company what should you do if you receive a Statutory Demand?

| Published on August 2, 2018

As an individual or company what should you do if you receive a Statutory Demand?

A Statutory Demand is used as a means of exerting pressure on an individual or a company where they have not paid their debts. If an individual has not paid a debt of over £5000, or a company has not paid a debt of over £750, then the creditor can issue a statutory demand as a precursor to commencing bankruptcy/insolvency proceedings.

If you receive such a demand, you have various options which can be summarised as follows:

  • pay the debt immediately and in full;
  • negotiate a payment plan with the creditor; or
  • consider whether the debt is disputed and take formal action to stop the effect of the demand.

You should seek legal advice at the first opportunity to consider which is the best option for you or your business in the circumstances.

The final option involves a court process whereby you have to ask the court to stop the effect of the demand while the parties try and resolve the dispute between them. The Court may grant an application to stop the effect of a statutory demand if any of the following apply:

  • The debtor appears to have a counterclaim, set-off or cross demand 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;
  • It appears that the creditor holds some security in relation to the debt claimed by the demand; and/or
  • The court is satisfied, on other grounds, that the demand ought to be set aside looking at all of the circumstances.

It is important that you do not ignore the demand once received; if 21 days have expired after receiving it the creditor will be entitled to present an individual’s bankruptcy or present a winding up petition for a company.

Ignoring the demand can have a detrimental effect on your finances. For example, if a winding up petition is presented for a company then any disposition of the company’s property which occurs after that date will be void. The company’s bank will freeze its bank accounts to protect the bank. In addition, there may be substantial long term harm to the commercial reputation of the company. There may be a risk of personal financial liabilities on the directors too.

It is important to seek legal advice early on as the time limits are strict and short. The benefit of taking advice will far outweigh the risk to your finances or business if the creditor takes immediate steps against you.

For further advice please contact the dispute resolution team at our offices in Poole on 01202 725400 or Dorchester on 01305 251007.

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