There are various means of recovering a commercial debt one of which is issuing a statutory demand which can be a powerful weapon since a statutory demand can be a prelude to insolvency proceedings. In some cases a statutory demand is the way to go for success but in other cases it can lead to unnecessary risk and costs.
Statutory demands can be the way to solve commercial debts because a party served with a statutory demand has only 21 days to respond which would usually be to either settle the debt (either in full or by way of a payment plan), reduce the debt to below £750 or raise a dispute (see below).
If an agreement cannot be reached or if the commercial dispute is not bona fide (genuine), provided that the outstanding debt is £750 or more, the party that has served the statutory demand can move towards insolvency proceedings. This usually makes the debtor sit up and pay attention.
Insolvency proceedings will cost more than £750.00 to commence and pursue by a creditor which means :-
Serving a Statutory Demand
It is important that a statutory demand is served in accordance with the rules otherwise it could be deemed invalid and the party that has served the demand could be held liable to pay the debtors legal costs.
The general rule is that the statutory demand should either be personally delivered to the debtor or by process server. If the statutory demand cannot be personally delivered it should be sent by registered post or put through the debtor’s letterbox.
Depending on the method of service, a witness statement of service will also be required.
Challenging a Statutory Demand
A statutory demand is not supposed to be a shortcut to court proceedings but in some cases creditors do use a demand as an alternative to waiting possibly months to obtain a court judgment. As statutory demands are designed to be used only for uncontested debts, a creditor that uses a demand without a formal admission of indebtedness, a court judgment or very clear proof of the debt is taking a risk. A court is likely to be suspicious also if the debt is relatively low, bearing in mind the demand is a prelude to insolvency and few creditors would realistically spend the money to make someone bankrupt or wind up a company for a small debt.
The method of challenging a statutory is for the debtor or his, her or their representatives to write to the creditor as soon as the demand is received (bearing in mind the short deadline to comply or apply to set aside the demand) explaining why the statutory demand is improper or the debt is contested and asking them to withdraw it. Should the creditor not accept the debtor’s argument then depending on whether the debtor is an individual or company, they should take the steps outlined below.
The time limits are strict. Failure to apply to the court in time to either have the statutory demand set aside or to apply for an injunction will leave the party that served the statutory demand free to move towards insolvency proceedings.