If a creditor believes that you owe them monies for a debt, one of the ways in which they may seek to recover that debt is by the service of a Statutory Demand.

What is a Statutory Demand?

A Statutory Demand is a formal written document from an individual or company to an individual or company demanding payment of an outstanding debt from that individual or company within 21 days.

Although Statutory Demands are not Court documents, if you do not act promptly following receipt of the Statutory Demand, or wish to dispute the Statutory Demand, then it is likely that the Court will become involved and proceedings commenced.

A Statutory Demand is often the first step in a creditor commencing either bankruptcy proceedings against an individual, or winding up proceedings against a company.

Although Statutory Demands can be issued for any sum, they are usually only used where the sum claimed is £750 or above (in relation to a debt owed by a company), or £5,000 or above (in relation to a debt owed by an individual), as these are the current monetary thresholds for a creditor to be able to issue a winding up or bankruptcy petition if the debt is not repaid after the Statutory Demand has been served.

Although there is no requirement to do so, it is likely that a debtor will have received a letter before action requesting payment of the debt before being served with the Statutory Demand. As such, the Statutory Demand will not usually be unexpected.

Statutory Demands should only be served where the debt is not disputed. If you have received a Statutory Demand and dispute the debt, then you must act promptly (and within 18 days of being served with the Statutory Demand) in order to either apply to set aside the Statutory Demand or restrain the presentation of a winding up petition.

What should you do if you have received a Statutory Demand?

If you or your company have received a Statutory Demand, you must not delay in responding to it, as there is only a short period of time to act, failing which you could find yourself on the end of bankruptcy or winding up proceedings.

You only have 21 days from the date you were served with the Statutory Demand to pay the debt set out in the Statutory Demand.

Paying back the debt

If you do pay the debt in full, you should request that the creditor formally withdraws the Statutory Demand. There is no formal process for this, but ideally, you should ask the creditor to confirm in writing that the Statutory Demand is withdrawn.

If the debtor cannot pay all of the debt, then they should seek to pay part of the it, so that the sums owed to the creditor are reduced to below the relevant thresholds (£750 for companies and £5,000 for individuals). If the debtor is able to do this, then the creditor will not be able to proceed with a winding up petition or bankruptcy petition.

If you are unable to pay the debt, you should contact the creditor or their solicitors to see if you can enter into a form of payment arrangement with the creditor. Often, creditors simply want their debts repaid and it is not necessarily in their interest to make you bankrupt, as they are less likely to recover the monies owed to them. As such, you may be able to negotiate a payment arrangement. You will probably need to provide details of your assets and liabilities to the creditor to show them how much you can afford and how regularly you can make payments.

What if I dispute the debt?

If, however, you dispute the debt, you will only have 18 days in which to make an application to set aside the Statutory Demand or, if you are a company, to make an application for an injunction to restrain the presentation of a winding up petition.

These types of applications can be complicated to make, and it is best to seek legal advice if you need to make either of them. You will need to provide detailed witness statements setting out the reasons why the debt is genuinely disputed (these must be ‘substantial grounds’), providing evidence of the same and why it is inappropriate for the insolvency courts to deal with the dispute (which should ordinarily be dealt with by the County Court or High Court). If you are successfully able to set aside the Statutory Demand or restrain the presentation of a winding up petition, then ordinarily you will also be able to recover your legal costs of any application, although your solicitors will be able to advise you further on this.