It is an unfortunate part of running a business that some customers do not pay for the services or goods provided to them. When wishing to recover payment, you have the following options:
- Serve a statutory demand on the indebted party; and/or
- Issue proceedings against the party for payment of the debt. We recently posted an article on the steps to be followed when pursuing a debt claim (http://www.ehlcommercial.co.uk/pre-action-protocol-for-debt-claims/ ).
What is a Statutory Demand?
A formal written demand for an undisputed debt. Any creditor can make a statutory demand on the provision that they satisfy the statutory requirements. As with the recovery of any liability owed, it is important to make a “timely demand” [the longer a liability is left, the more difficult it is to recover].
Depending on when the debt is payable and whether the party is and individual or a company will affect the form of statutory demand required.
When can it be used?
A Statutory Demand can be served upon an individual or a company in accordance with the Insolvency Act 1986. A Statutory Demand should only be used where a debt is undisputed. To otherwise present a Statutory Demand where the Creditor knows that there is a dispute is likely to be considered an abuse of process.
There are government set levels of ‘permitted indebtedness’ that must be satisfied before a Statutory Demand may be presented. These are:
- £750.00 for companies; or
- £5,000.00 for individuals.
Statutory Demands are not and should not be used as “debt recovery tools”. It is a genuine method of formally demanding payment of an unpaid liability. The general position [as with most formal action] is that if a Creditor is prepared to serve a Demand then they should be prepared to proceed with the presentation of a Bankruptcy Petition / Winding Up Petition.
Benefits of serving a statutory demand
- Efficient and relatively inexpensive;
- Obviate the need for issuing costly proceedings;
- Can result in prompt payment or bring to light any dispute in relation to the amount being recovered.
Commercial relationships should always be taken into consideration when pursuing a debt. Statutory demands, although efficient, can be viewed as an belligerent tactic and the debtor may seek to have a statutory demand set aside subject to very strict rules.
What should I do if I have served a statutory demand and still not received payment?
After 21 days, if a debtor has failed to pay the debt or agree to pay the debt you have the option to begin proceedings against the company or individual.
A statutory demand can be used as evidence in bankruptcy or winding-up proceedings that a debtor is unable to pay its debts.
There is a time limit of 4 months in which you must apply to begin proceedings or the statutory demand will expire. If proceedings are sought after this time the creditor must give reasons of the delay in a statement of truth in accordance with the Insolvency Rules 2016.
Statutory Demands need to meet certain formality requirements, therefore legal advice should always be sought before considering whether a statutory demand is suitable. This article should not be considered as legal advice and should in no circumstances be relied upon as such.
Should you wish to discuss pursuing a debt please contact a member of the Advisory and Dispute Resolution team of EHL Commercial on 0330 024 9643.