Statutory demand guide

What is a statutory demand?

A statutory demand is a formal written demand (usually over £750 for companies or £5,000 for individuals) that (where the debt remains unpaid) acts as a precursor to bankruptcy or winding-up proceedings. It should be used when you are owed an undisputed debt and want to put serious pressure on the debtor to pay, as they have 21 days to either pay the debt or reach an agreement - failing which, you can petition for their bankruptcy (for individuals) or winding-up (for companies).

A statutory demand should not be used if there is a genuine dispute about the debt, as the court may set aside the demand and order you to pay costs.

There is a standard prescribed form for statutory demands in England and Wales :-

• Form 4.1 is used for demanding payment from individuals

• Form 6.1 is used for demanding payment from companies

These forms must be used and filled out correctly as they are prescribed by the Insolvency Rules 2016.

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.

Serving a statutory demand

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.

Service on company

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.

Service 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

Some debtors claim, when receiving a bankruptcy or winding up petition, that they di not receive the statutory demand can be tricky and depends heavily on how the demand was served.

The main substantive grounds for setting aside a statutory demand under English law are :-

• The debt is genuinely disputed on substantial grounds - meaning there is a real triable issue about whether the debt exists or its amount

• The debtor has a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt - this must be a genuine claim that could be pursued legally

• The debt is secured (i.e. there is collateral against it) and the security is not worthless - a statutory demand should only be used for unsecured debts

• The demand is defective in its content or form - for example, if it contains major errors, uses the wrong prescribed form, or wasn't properly served

• For other material irregularity - this includes situations where serving the demand was an abuse of process or where there are other compelling circumstances that make it unjust for the demand to stand

The application to set aside must be made within 18 days of service of the statutory demand. The debtor needs to demonstrate at least one of these grounds and provide supporting evidence. If successful, the court may not only set aside the demand but also order the creditor to pay costs.

How we can help

We have an experienced team of commercial dispute and insolvency solicitors that advise creditors and also debtors.

For creditors we advise on the best options and the risk/reward of considering serving a statutory demand, we draft and serving statutory demands and where necessary act for clients initiating Insolvency Proceedings, petitioning either for bankruptcy or winding up. We can also ensure that if clients opt to accept some form of settlement plan with the debtor, it is legally watertight.

For debtors, we regularly challenge Statutory Demands including applications to set aside, identifying grounds to dispute the debt or defending winding up or bankruptcy proceedings. We also negotiate payment plans.