A statutory demand is a request for the payment of outstanding debt.
If you have an undisputed amount due to you or to your business (e.g. an unpaid invoice) then you can file a form called statutory demand requesting a debtor to settle the debt.
A statutory demand is a kind of a warning from you to a debtor that the failure to repay the debt might result in the start of a procedure in the courts to make the debtor bankrupt. This form is often used as a legal tool to apply pressure on the debtor to ensure that they repay their debt.
You must deliver (‘serve’) the statutory demand form, in the case of an individual debtor, by giving/handing it to them. You should try to serve the debtor at all their known addresses. In the case of a company debtor, you should leave it (post it) to the registered address of the debtor. It is not allowable to serve the statutory demand via an electronic means of communication (e.g., email).
The debtor has three ways in which he can respond to a statutory demand:
- Pay the debt in full within 21 days from service;
- Negotiate a payment plan with you; or
- Apply for an Order setting aside the statutory demand.
If your debtor ignores a statutory demand that has been correctly served by you, you have a right to file a petition for a bankruptcy order (if you are owed £5,000 or more by an individual, including a sole trader or a member of a partnership), or to file a winding-up petition against a company if you and any other creditors are owed £750 or more. This step, however, can be lengthy and costly (at least £2,000) and at the end of the process, you will have to share any net assets left after the costs of insolvency with the other creditors.
Whether to take this further step is entirely your choice and depends on many factors. You can serve the statutory demand and not pursue the bankruptcy of the debtor.
The debtor can apply to the court for an order setting aside the statutory demand if there is a genuine dispute about the existence of the debt, its monetary value.
If the debt is undisputable and your debtor simply does not want to pay it and you are for some reason not willing to start a court claim for its recovery, you can choose to serve a statutory demand on the debtor. In some cases, if the business is viable with no plans to be wound up, the debtor will try to negotiate a repayment schedule and you can achieve your goal of recovering the outstanding debt.
In some cases, however, you are better advised to prepare the pre-action protocol and, if necessary, issue the proceedings.
Therefore, if you have an unpaid debt then you should seek legal advice as to what is the best course of action depending on your circumstances.
If you decide to serve your debtor with a statutory demand, you can do it yourself. However, if you require assistance with the above, we, at Sterling Lawyers will be happy to help you.