A Guide to Statutory Demands for Creditors

Bethany Fitzgerald and Oliver Williams of our Dispute Resolution team explain how a statutory demand may assist creditors in recovering debt. If you are looking to recover substantial debt from an individual or a company, you may have considered issuing a Statutory Demand. Issuing a Statutory Demand is the first step in winding up a company or starting bankruptcy proceedings against an individual. Statutory Demands are just one potential means of recovering your debt, so it is important to seek legal advice as to the best action to take in your specific situation. What is a Statutory Demand? A Statutory Demand is a formal document which gives the debtor 21 days to make payment before the creditor is entitled to take further action to recover their debt. A Statutory Demand does not itself commence Court proceedings; it is not issued at Court and requires no Court fee. Why issue a Statutory Demand? Issuing a Statutory Demand can often result in the debtor offering payment proposals. However, if it does not then the Demand can form the basis of bankruptcy proceedings or a winding up petition. In order to initiate bankruptcy or winding up proceedings against a debtor, it is necessary under the Insolvency Act 1986 to show that the debtor is unable, or has no reasonable prospect of being able, to pay their debts. Failure to comply with or set aside a Statutory Demand after 21 days have elapsed is considered proof that the debtor is unable to pay its debts. How do I issue a Statutory Demand? There are different specific rules relating to Statutory Demands in the context of personal and corporate insolvencies. Any Statutory Demand will need to state:

1. The proper identities of the creditor and the debtor
2. Details of the debt, any consideration for it and how it arose
3. Details of any interest or other charges that are accruing

To be entitled to commence bankruptcy proceedings against an individual, the outstanding debt must be £5,000 or more. To be entitled to commence winding up proceedings against a company, the outstanding debt must be £750 or more. The Statutory Demand must be accompanied by a statement setting out the proof of debt and must comply with the Insolvency (England and Wales) Rules 2016. Creditors are encouraged to seek legal advice when preparing a Statutory Demand to ensure that it is validly drafted and served. What now? If you find yourself in a dispute over debt, you should always seek professional advice to navigate you efficiently through its resolution. For more information on the contents of this article or advice on the issues raised, please contact us to speak to a member of our Dispute Resolution Team.