What is a Statutory Demand and How Could it Affect Your Company?March 5, 2020
It can be stressful dealing with your company's finances. Issues with cash flow can spiral out of control and before you know it, you’re missing important payments to creditors - plunging your business into even deeper debt.
If your company owes money, you'll likely have plenty of opportunities to settle it, and many creditors will work with you to come to a repayment arrangement.
Unfortunately, this isn’t guaranteed, and attempted arrangements with your creditors can fall flat. Your company could be in serious trouble if you don’t pay what you owe.
While creditors don't necessarily need to head straight to court to resolve a dispute, they have plenty of options for debt collection - like issuing a Statutory Demand, for example.
We're going to explain what a Statutory Demand is, its implications for your company, and what to do if you receive one.
What is a Statutory Demand?
A statutory demand is a quick way for creditors to reclaim money owed without court involvement.
If a creditor is owed £750 or more and has actively tried to collect the money they're owed, then they can resort to sending a statutory demand which demands the payment of a debt.
You'll have 21 days to pay the balance owed or the creditor will pursue court action - which could take the form of a winding-up petition. A statutory demand is a severe debt recovery tool and it won't come out of nowhere.
Can I refuse to pay it?
Refusing to pay the balance asked for in the statutory demand, or failing to come to another agreement, could lead to a winding-up or bankruptcy petition. If this is approved by the court, your company could be liquidated.
Remember, you get three weeks after the demand has been served to pay, so the creditor can't apply for a winding-up petition during that time.
On the other hand, if the creditor takes no further action within four months of serving the statutory demand, then it 'goes stale', meaning they'd have to serve a new one.
Can it be reversed?
If you've received a statutory demand, all hope isn't lost. The statutory demand can be reversed if you make a counterclaim. However, this is only likely to be successful if one of the following applies:
- You're paying what's due in instalments and you haven’t missed any payments.
- The creditor didn't use the correct forms or procedure for serving the demand.
- The creditor also owes you money.
- The creditor already holds security that's equal to or even more than the debt.
- The demand was made due to a misunderstanding or error.
It can also be 'set aside' by the court themselves. After careful examination, the court can decide to render the demand invalid. For instance, they'll check the legitimacy of the debt (whether it's accurate) and make sure the correct procedures have been followed.
It's important that a creditor sends you the correct Statutory Demand Form (4.1) and delivers it to your address either by hand, by registered post, or signed for by an officer of your business - so it can't be emailed.
Unfortunately, some creditors utilise Statutory Demands to intimidate and pressure debtors into paying up quickly. It's highly recommended that you consult a qualified debt expert at this point: don't be forced into paying something that isn't a direct court claim.
What should I do if I've been served?
Firstly, you must seek the services of a qualified insolvency practitioner, who will make sure everything is done according to procedure - preventing you any headaches or unnecessary court fees. They will also be able to advise you if the creditor's Statutory Demand is valid, and whether it could be resolved or set aside.
Assuming it can't be set aside, you have the following options:
Pay it in full: Obviously, this is the easiest option. However, you might not be in a position to do so.
Come to an agreement: One thing that often works is arranging with your creditor to pay the money owed in instalments. Many creditors will accept this, as it means they're getting their money back as opposed to you filing for sequestration.
Ask your creditor to write it off: If you have no income or valuable belongings, and no way to pay, you can explain this to your creditor. Sometimes, they will write off your debt, especially if they have nothing to gain by filing a bankruptcy petition.
Offer security: If you own your home, you can ask the creditor if they'll take security on it, which will be held against the money you owe. This means that when you sell your house, you'll pay a voluntary charge - the debt will come out of the proceeds.
Reduce debt to under £5000: A creditor can't apply for a bankruptcy petition against you if you owe less than £5000. While this isn't a long-term solution to your debt problem, it can buy you some time.
Set up an IVA (Individual Voluntary Arrangement): This is a legally binding arrangement that guarantees you'll pay your creditors over a set period of time. This can only be used if you can prove you've got a regular income. This is expensive to set up, but it's a better scenario than receiving a bankruptcy order!
How will it affect my company?
A Statutory Demand can be a critical point in your company's life and isn't a position any company director expects to be in.
This is typically the last chance you have to settle your debts before court action is used against you. If you don't pay this swiftly, and can't come to another arrangement, the creditor will likely start a winding-up petition. If approved by the court, this can result in the liquidation of your company.
If you've received a statutory demand, it's important not to panic - most creditors are happy to work with you, as they want to receive their money back.
You must seek the services of a qualified insolvency practitioner. Our experts at 180 Advisory Solutions will be able to offer you expert legal advice, and help you deal with the statutory demand. If you do receive a winding-up order, we'll guide you to the best possible outcome.
Get in touch with us on 0141 280 3221 or send us an email at firstname.lastname@example.org .