Received A Statutory Demand?

A statutory demand is a written demand from a creditor for the repayment of an outstanding debt. It indicates that the creditor will begin formal insolvency proceedings against you if you do not respond or pay the money, they believe you owe. A statutory demand is the precursor to a winding-up petition. This will force the closure of your business and therefore commences the start of the liquidation process.

Although there is an official form to be completed by the creditor, a statutory demand is not a legal document and is not the same as a County Court Judgement. This certainly does not mean that they should not be taken seriously as they can have serious repercussions for you and your business.

If your business owes more than £750, a creditor can issue a statutory demand. Other than this, there are not many precursors. There is a set process that outlines how to serve the demand. This is usually carried out by someone known as a ‘process server’.

How To ‘Cancel’ A Statutory Demand

You can apply to ‘set aside’ a demand if you think that it is incorrect. This can be for several reasons for example if the amount is wrong or if the debt is more than 6 years old.

However, you must submit this application within 18 days of receiving the demand.

Alternatively, you can pay the demand in full, this will remove the demand and prevent any further action. We recommend acting quickly and getting expert advice before responding to any demand.

21 Days

Overall, you have 21 days to deal with a statutory demand. That is 18 days to submit an application to set aside and the full 21 days to pay the debt or come to an arrangement with the creditor.

After this 21-day period has passed, the lender can begin formal insolvency proceedings. At this point, you stop being in control of the situation, and liquidation proceedings will begin. This sees a licensed insolvency practitioner appointed to close your company, where their main role is to realise the assets and sell them to pay creditors. After this, your company will cease to exist.

This will also trigger any personal guarantees that you have previously signed, as well as raising raise the issue of director’s loan accounts and will see your conduct as a director scrutinised.

What Happens If You Don’t Respond to A Statutory Demand

Although sometimes statutory demands are used as a ‘scare tactic’ they do also carry severe consequences. Failure to respond will result in:

• The debt being recognised in law, similar to a judgment. This means if you don’t owe the debt, it may be too late to dispute.
• A winding up petition is issued, this will be publicised in the Gazette, this means your bank and lenders will be aware. You will struggle to get credit and personal guarantees will be triggered.
• You have 7 days before a winding-up order is issued by the court.  After this, your company will be placed into liquidation. Your bank account will be frozen, and the business will cease to trade with an insolvency practitioner beginning to investigate the company’s financial position.