What is a Statutory Demand?

What is a statutory demand?

A statutory demand is a formal legal document that is sent by a creditor to a debtor demanding payment for a debt that is owed. It is a formal legal instrument for creditors looking to collect their debts and often acts as a prelude to more severe legal measures, such as a bankruptcy or winding-up petition.

What is the statutory demand Process?

The statutory demand process involves several essential steps:

1. Issuing the Demand: The debtor receives the statutory demand from the creditor, which includes the amount claimed and a deadline for payment (often 21 days). It is advisable that a creditor seeks professional advice on issuing a statutory demand as there are specific protocols which need to be observed to ensure that it is validly served.

2. Response from the Debtor: If the debtor believes that the amount claimed by the creditor is invalid or not due, then they can apply to have it set aside if it is served to them as an individual, or apply for creditors to be ‘restrained’ from issuing a winding up petition if the statutory demand has been issued to a company.
   If the debtor believes the amount claimed is due, then they must make payment, if they do not, then they risk the creditor making an application to court.
3. Consequences of Non-Compliance: Legal action, such as bankruptcy or winding-up petitions, may be taken if you fail to react or comply with the demand. Therefore, you must engage with an appropriate professional immediately to protect your position.

What to do when you receive a statutory demand?

When you receive a statutory demand, it is crucial to act promptly. Here are the two steps you need to take immediately to protect your position.

• Assess the Validity: Check the demand to make sure that the amount claimed is valid and due.
• Seek Professional Advice: To understand your position, contact a qualified professional at the first opportunity.

How to apply to have the statutory demand cancelled?

You cannot simply have a statutory demand cancelled. 

If the statutory demand has been served on you as an individual, then you can apply for the statutory demand to be set aside. 

If the statutory demand has been served on a company, then you must apply for an injunction to prevent creditors from issuing a winding up petition.

Given the importance of defending yourself properly against a statutory demand, then in either situation, it is advisable that you take appropriate legal advice.

How long does a statutory demand take?

If the statutory demand is not paid within 21 days, and no application has been made to set aside the statutory demand or restrain creditors, then creditors are able to issue a bankruptcy or winding up petition. 

What happens after a statutory demand?

The creditor has the right to start bankruptcy or winding-up procedures (for individuals and limited companies respectively) when the 21-day deadline has passed without payment or settlement. These are significant legal measures that may result in the bankruptcy of an individual or the liquidation of a company.

Is a statutory demand a CCJ (County Court Judgment)?

No, a County Court Judgement (CCJ) is not a statutory requirement. A CCJ is a distinct legal action brought against a debtor, usually following the issuance and non-compliance of a statutory demand.

When Should You Issue a Statutory demand?

A statutory demand is often issued when informal attempts to engage with a debtor to settle an amount due have not been successful. It is often seen as the first step in formal court applications to compel payment. 

How Should a statutory demand Be Served?

A statutory demand needs to be served properly, as if it is not, then it may be unenforceable. It is recommended that a process server is used for the initial service to ensure that it is served correctly. 

How Serious Is a statutory demand?

A statutory demand is incredibly serious. If it is not dealt with appropriately, then it may lead to a bankruptcy or winding up petition, both of which are to be avoided if at all possible.

How Much Does a statutory demand Cost?

A statutory demand’s price varies based on the complexity of the case and the preparation needed to ensure it has been served correctly and is enforceable.

Does a statutory demand Affect Your Credit Rating?

Statutory demands are not listed on your credit file and so do not affect your credit rating. However, if they are not dealt with immediately then it might lead to serious repercussions such as a bankruptcy or winding up petition being issued.

How Can I Identify a statutory demand?

Statutory demands are a formal demand for payment issued to you by a creditor. It should unambiguously list the  amount owed, the creditor’s and your details, and information about the debt. It is vital to respond to such a statutory demand right away and obtain appropriate legal advice.

How Long Is a statutory demand Valid For?

The length of time a creditor has to progress to the next stage of compelling payment depends on whether the Statutory Demand has been served on an individual or a company.

If it has been served on an individual, then the creditor has 4 months to issue a bankruptcy petition. If 4 months elapse without a bankruptcy petition being issued, then the creditor will have to reissue a Statutory Demand

If the Statutory Demand has been served on a company, then the creditor can issue a winding up petition at any point after the initial 21 days after service have lapsed.

How to Comply with a statutory demand for Payment?

Debtors have two options for responding to statutory demands: pay the debt in full / formalise a settlement with the creditor or seeking to set aside the statutory demand or ‘restrain’ creditors. If you do not intend to pay the amount listed on the statutory demand, then it is recommended that appropriate professional advice is sought.

 

In conclusion, it is crucial for both debtors facing prospective legal action and creditors pursuing debt recovery to take appropriate professional advice to protect their position. 

Actively managing your debts will help you avoid major legal repercussions and protect your financial status.
For further information and impartial advice, feel free to give us a call on 0113 242 0808 or e-mail advice@chamberlain-co.co.uk