Debt recovery tip 4 - What is a Statutory Demand and how does it affect a debtor?

What is a Statutory Demand?

A Statutory Demand is a formal 21-day demand for payment issued by a creditor to a debtor.

When can a Statutory Demand be issued?

You can issue a Statutory Demand if your debt is owed from a limited company or an LLP and is a liquidated sum of more than £750 or when a creditor is owed a debt from an individual, a sole trader or a partnership as long as the debt is for a liquidated sum of more than £5000 and is unsecured.

A Statutory Demand cannot be issued if there is a dispute or, an agreement is in place to make payment. Should the debtor default on the agreement, you can proceed accordingly. If a creditor serves a Statutory Demand on a disputed debt or, refuses to withdraw it if a dispute is raised after it is served, then the creditor may have to pay the debtor’s legal costs for setting aside the Statutory Demand against an individual or, for an injunction preventing the presentation of a winding up petition by the creditor.

Why would you issue a Statutory Demand?

A Statutory Demand is a tool to prove that a person or, a company cannot pay their liabilities as and when they fall due and are therefore insolvent.  

Unsecured creditors generally use this process when they are owed a significant amount of money as it represents a serious threat that a creditor can issue a Petition if payment is not received within a 21 day period. The demand must be personally served on the person or, at a company’s registered office address.  

What happens following issue of a Statutory Demand?

If the debtor fails to pay, secure or compound for it to the creditor’s satisfaction within the 21 day period, the creditor is entitled to present to the court a petition for winding up (company) or, bankruptcy (person).