Statutory demand guide

A statutory demand is a written demand for payment of a debt served on either an individual or a company  as a prelude to presenting a petition for bankruptcy (if the debtor is an individual) or winding up (if the debtor is a company) in the event the demand is ignored and the debt remains unpaid.

If after 3 weeks from the date the statutory demand is served the debtor fails to make payment, the creditor then has grounds to issue a bankruptcy or winding up petition.

There are a number of rules which creditors must obey in both issuing a statutory demand and serving it on the debtor. Failure to serve a statutory demand in compliance with these rules can render the statutory demand ineffective, allowing the debtor to either set aside the statutory demand or, in the event the debtor has been made bankrupt or wound up, they can make an application to annul the order, irrespective of whether the debt is legitimate or not.

Serving a statutory demand on a Company

A creditor can only serve a statutory demand on a debtor where the debt is undisputed and equals or exceeds £750.00. If the statutory demand is served on a limited company, it should be served at the registered office of the company. If the statutory demand is served on an unregistered company, it should be served by leaving the statutory demand at the company’s main place of business or delivering the statutory demand to a director/officer of the business. Upon service, the debtor has 21 days in which to apply to set aside the demand.

Serving a statutory demand on an Individual

A creditor can only serve a statutory demand on a debtor where the debt is undisputed and equals or exceeds £5000.00. In serving a statutory demand the creditor ‘must take all steps to make sure that the statutory demand comes to the attention of the individual’. Upon service, the debtor has 18 days in which to apply to set aside the demand.

Ensuring you serve correctly

Usually a process server will be instructed to attend the debtors address to hand deliver the statutory demand upon the debtor. This is referred to as ‘personal service’. In the event this is not possible, substituted service may be effected by other means, such as first class post or insertion through a letterbox.

If the creditor is aware the debtor either resides or has links to more than one address, under insolvency rules they are obliged to make attendances at all addresses before making substituted service. Similarly, if the creditor has a telephone number or email address for the debtor and they have made no attempt to bring the statutory demand to the attention of the debtor, under insolvency rules they cannot be deemed to have made ‘every attempt’.

Setting a Statutory demand aside

Set aside and annulment proceedings can be very costly for both the creditor and the debtor. If a Judge rules that a statutory demand has been improperly served on a debtor or the use of the demand was a deliberate attempt to shortcut normal court process where a debt is potentially disputed, the creditor can be ordered to pay the debtors legal costs in bringing the application. Dependent on the value and complexity of the case, these costs can easily mount up.

If the creditor is an individual or a small business, bearing the burden of paying such costs can be severely detrimental and in some circumstances drive them into insolvency.