Receiving a statutory demand is a serious matter. It is one of the formal steps a creditor can take in the process of pursuing an unpaid debt, and if it is not responded to correctly, it can have significant consequences including the start of winding up proceedings against a company or bankruptcy proceedings against an individual. Acting promptly is essential.
A statutory demand is a formal written demand for payment of a debt. For companies, it is a demand for payment of a debt that is due and payable, typically for a sum exceeding a minimum threshold. If a company fails to pay a statutory demand within 21 days, this is treated as evidence that it is unable to pay its debts, which can be used as the basis for a petition to wind the company up.
For individuals, a statutory demand for a debt above the relevant threshold can lead to a bankruptcy petition if not paid or set aside within 21 days. The consequences of an unpaid statutory demand are therefore potentially very serious, which is why acting quickly is so important.
There are several ways in which a statutory demand can be addressed. The simplest is to pay the debt if it is genuinely owed and undisputed. If the full amount cannot be paid immediately, negotiating a payment arrangement with the creditor is often the most practical approach.
Where the debt is disputed, either because you do not believe it is owed at all or because you have a genuine cross-claim against the creditor, you can apply to the court to set aside the statutory demand. An application to set aside must be made within 18 days of service of the demand. The court can set it aside where there is a genuine dispute about the debt or a substantial cross-claim.
Our property law barristers can advise on whether grounds exist to set aside a statutory demand served on you or your company.
If you have a genuine dispute about whether the debt is owed, or about the amount, the statutory demand route is being misused by the creditor. Statutory demands are intended for undisputed debts. Using a statutory demand as a tool to collect a genuinely disputed debt is an abuse of process, and courts will generally set aside a demand where a real dispute is demonstrated.
The key is to act within the time limit. Failing to apply to set aside a statutory demand does not mean the court accepts that the debt is owed, but it removes one of the earliest available options for preventing winding up or bankruptcy proceedings from being presented.
If a winding up petition is presented against a company, the consequences can be very serious even before the hearing takes place. Banks may freeze company accounts on becoming aware of the petition. The company's credit may be affected. Trading relationships may be damaged. Acting to challenge or resolve a winding up petition at the earliest possible stage is therefore important to limit these consequences.
The best approach where a statutory demand has been received is to take legal advice immediately. Understanding what options are available, whether the demand can be set aside, whether a payment arrangement can be negotiated, and what the realistic consequences of each approach are requires specialist input. Decisions made in the first few days after receiving a statutory demand can determine the outcome.
Taking early advice can make a real difference to how your situation develops. Reach out to us today to arrange a conversation with one of our barristers.