What is a statutory demand?
A statutory demand is a formal notice that a creditor (ie a party owed money) uses to demand payment of a debt. It's a legal document, often preceding bankruptcy (for individuals) or winding-up proceedings (for companies).
On receiving a statutory demand, a debtor (ie the party that owes the money) has a set period of 21 days to either pay or negotiate an agreement for payment with the creditor. If the debtor does not respond to the statutory demand within 21 days, an application for bankruptcy or insolvency can be made against them.
When can you serve a statutory demand?
If you are owed money (ie someone is indebted to you), you can make a statutory demand. The only exception is that you generally cannot issue a statutory demand if the debt is over six years old. Where you have a debt that is older than this, you should Ask a lawyer for advice on how to proceed.
Only issue a statutory demand if there is no dispute that you are owed the money. If you serve a statutory demand and then issue a bankruptcy or winding-up petition, the court must stop the proceedings if there is any dispute about the sum outstanding. It is relatively easy to have a statutory demand set aside, and the court can order for costs against you (ie require you to pay for costs incurred in bringing and handling the claim).
Remember that issuing a statutory demand is a serious step. It should not be used unless the relationship with the person who owes money has totally broken down.
If you plan to issue a statutory demand in order to start bankruptcy or insolvency proceedings, you will want to make sure that the debt is for at least £750 (where the debtor is a company) or £5000 (where the debtor is an individual).
A statutory demand can be an effective debt collecting device in its own right, without the need to proceed to a winding-up petition. Frequently, a statutory demand is used as a 'bluff', and it is actually rare for it to be followed by a petition for bankruptcy or winding-up.
How should you serve a statutory demand?
A statutory demand can be served as soon as the debt is due. It’s simple, cheap and you don’t need to obtain a court judgment first. All you need to do is fill out the correct statutory demand form depending on your recipient and send it to them. To find out which form you will need to fill out for your intended recipient and their jurisdiction, read the government guidance.
You should deliver or ‘serve’ a statutory demand in person by:
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handing it to the debtor, if they are an individual
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dropping it off at their registered address, if they are a company or partnership, or
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giving it to a company director, company secretary, or manager
A statutory demand should only be sent by recorded post or put through a letterbox if it can’t be delivered in person. Make sure you keep a copy of the statutory demand and anything that confirms the time and date the demand was served (eg a proof of delivery). You might need this information if your statutory demand is ignored.
The receiving party (the debtor) will often respond by paying immediately. Alternatively, they can offer property as security or agree to pay in another way, such as through instalments.
What to do next if the payment is still not made
If the party does not either pay or respond within 21 days, the next step is to apply for a bankruptcy petition or a winding-up petition. If the court finds in your favour, the other party must be wound up or made bankrupt.
Be aware that, even if you have sent a statutory demand, there’s no warranty that you’ll be paid. Unfortunately, as the petitioner, you do not get priority over whatever money is available.
There is also a possibility that your debtor may challenge the statutory demand if they do not agree with it and try to have it set aside.
If you have any concerns about issuing a statutory demand, we recommend that you Ask a lawyer for advice.
