Statutory Demands - Creditors' Solution for Reluctant Debtors

Considered by some as nothing more than a scare tactic, results show that Statutory Demands are highly effective when pursuing money from reluctant debtors.

Useful against both indebted individuals and companies, a Statutory Demand is the first step in bankruptcy threats, prepared and served without any Court involvement.

Statutory Demands carry the warning that any money left outstanding will be swiftly followed by a bankruptcy petition and are so successful that in the majority of cases where a demand is issued no bankruptcy petition is actually sought.

Currently, there are two types of Statutory Demands available to creditors.

Statutory Demands made under Section 268 (1) (a) of the Insolvency Act are used in everyday situations where debtors simply owe a sum of money.  By contrast, Statutory Demand – Debt for Liquidated Sum Payable Immediately are typical where a creditor has already challenged a debtor for non-payment, obtained a Court judgment, and wishes to enforce it by means of the highly effective Statutory Demand.

Whichever option, guidelines enforced by the Insolvency Rules mean Statutory Demands must contain certain information, such as clear details of how a debt arose and the total amount being chased.  No demand can be issued if the amount owed is under £750.

A Statutory Demand can be served as soon as the debt is due and a judgment is not necessary.  If the debtor disputes the claim, he or she can apply for the Statutory Demand to be set aside and Bankruptcy Courts will halt further petitions, if there is any dispute about the sum outstanding.

Under previous systems, when a company was forced into liquidation the liquidator would be the first to receive any monies owed.  But new regulations mean that unpaid employees are considered and then reimbursed first, liquidators second, followed by the owners of any outstanding fixed charges and unsecured creditors thereafter. 

Provided creditors are certain that a debt is contractually due, and debtors have the money, a Statutory Demand may be the best option.

Once issued, debtors have 18 days to formally dispute any claims levied against their name.  If no dispute is filed, debtors have 21 days from the day a Statutory Demand was served to pay the full amount owed, offer property as a security, make some settlement, or arrange with their creditor to service outstanding debts.

Additionally, if debts are owed by companies rather than individuals, similar principles can be applied, the only differences are in the delivery/service of any demands and consequences for debtors.

However, unlike individual debts leading to bankruptcy petitions, if a company fails to pay, a Winding Up petition can be filed in the Court.  Once granted, a company will be liquidated and its assets will be valued in order to pay creditors on a dividend basis.  

Companies keen to halt creditors’ advances can obtain an injunction against Winding Up orders, but our expert solicitors can tackle such incidents and advise of the best course of action.

Individuals and companies with strong reputations are always keen to maintain a public façade.  Those solvent will be keen to see issues resolved.