Where clients have unpaid invoices and other unpaid debts, what they seek is a swift and inexpensive process to enforce payment. A statutory demand can, in appropriate circumstances, offer the solution.
A statutory demand is a document which gives a company/an individual 21 days warning to pay a debt. At the end of the 21 days the statutory demand can be followed up by a winding up petition against a company or a bankruptcy petition against an individual. In many cases following the issue of a statutory demand a petition is not issued as the claim is paid or settled. Statutory demands are successful because the average debtor is concerned by the consequences after the 21 day period.
A statutory demand is the first step to winding up/bankruptcy. They are prepared and served without court involvement and can be served as soon as the debt becomes payable and there is no requirement to obtain a judgment. If the debtor disputes the claim, they can apply for the demand to be set-aside. If the statutory demand is set-aside, this can result in an order for costs being made against the creditor but usually this is avoided if the demand is agreed to be set aside before proceedings are issued.
A statutory demand is not an essential requirement before a winding up petition can be issued against a company; an undisputed debt often is sufficient. Costs will however be payable by the creditor if the winding up proceedings have to be withdrawn because the debtor is able to show at least an arguable defence to the claim. It may therefore be prudent to serve a statutory demand first and only issue the petition once the 21 days has expired.
As at the date of this Quick Guide, there have been no temporary changes to the rules regarding statutory demands during the Covid-19 pandemic. The amounts needed to trigger a statutory demand and the 21 day period stated above remain the same as before. For the moment at least, it is business as usual, both legally and procedurally, although it is anticipated that an emergency practice direction will be published imminently.
Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please contact us if you have any questions about the information set out above.