What To Do If You Are Issued A Statutory Demand

close up of someone looking in an empty wallet

Being issued a statutory demand can be distressing for business owners and company directors. This formal notice is a last-resort attempt from creditors to recover monies they are owed and, if left ignored or unpaid, can result in the compulsory liquidation of the company in debt. It is therefore vital that you act quickly if your business is issued with a statutory demand, even if you believe the request is unfair or incorrect.

What Is A Statutory Demand?

A statutory demand is a formal request for payment of a debt, issued by a creditor to a debtor when other methods of recovering the debt have failed. Once issued, the debtor will have 21 days to comply with the demand and repay the debt or resolve the matter through other means. Critically, if the two parties fail to come to a resolution during this 21-day period then the creditor can then take steps to have the company formally closed down by petitioning to the court for a winding-up order.

It is important to note that a statutory demand is not the same as a winding-up petition but that the former often proceeds the latter. Creditors can use the statutory demand as evidence should they need to escalate the matter to the courts and petition for the winding-up of the company.

Who Can Issue A Statutory Demand?

There are a number of criteria which must be met for a statutory demand to be issued. If your company has been given a statutory demand and believes these criteria have not been met, you should dispute the request for payment as soon as possible.

Creditors can issue a statutory demand when:

  • The debt is undisputed.
  • The debt is above £750.
  • The debt is due and payable immediately.
  • The creditor does not owe a debt to the debtor.

Consequences Of A Statutory Demand

As we have discussed, the key consequences of a statutory demand come when it is ignored. If the debt is not paid or disputed within the specified time period, the creditor can apply to the court to wind up your company. This may ultimately lead to compulsory liquidation – a process through which directors are investigated, assets are sold by an insolvency practitioner, and the company is formally struck off from the Companies Register.

Not only can the statutory demand result in the formal end of the company, but it can also spell further repercussions for company directors. If insolvency practitioner discovers they are guilty of misfeasance then they may be personally liable for business debts. The severity of any punishment will depend on the specific circumstances but will likely make it hard to obtain credit or act as a company director in the future. 

How To Respond

With possible severe consequences, it is crucial that you act promptly if your company has been issued a statutory demand. There are three main approaches you can take and the most suitable will depend on the amount of money requested as well as the financial position of your business. 

Repay The Debt

Providing you have the means to do so, the most straightforward response is always to pay the debt in full. Full payment within 21 days will resolve the issue and prevent any further legal action that the creditor may be considering. 

Even if you cannot pay in full, it is worth considering what the business can afford to pay. Some creditors may be willing to negotiate a suitable repayment plan if they believe the debt can be satisfied over an agreed period.

Dispute The Statutory Demand

If you believe that the statutory demand is incorrect or unjustified, you can apply to the court to have it set aside. This must be done within 18 days of the demand being served and you should always get legal advice to confirm whether you have genuine grounds for disputing the debt. Examples of instances where an appeal may be successful include if the creditor owes your business money, has failed to follow the correct procedure or has falsified information. 

Enter Liquidation

If your business is unable to pay the debt, entering into liquidation on a voluntary basis may be the most appropriate next step. Insolvent companies can do this via a process called creditors voluntary liquidation (CVL) which involves appointing a licensed insolvency practitioner to sell business debts and liquidate the company. 

It is generally more favourable to enter liquidation voluntarily as opposed to being forced into liquidation via a winding-up petition as directors can prevent further legal action against them and outcomes for creditors are typically better. 

Get Advice You Can Trust

If your company has received a statutory demand and you believe it cannot pay its debts, you should seek advice from a professional immediately. Taking prompt action to understand the nature of the demand and your possible next steps is crucial and will help mitigate any future impact of being able to pay your debts. 

Be proactive and get in touch with the licensed insolvency practitioners here at My Liquidation today. Our experienced team can talk you through your options and, if necessary, work with you to liquidate the business on your own terms via a CVL. 

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