Statutory demands are legal demands that creditors issue to their debtors, either an individual or a company. It signals that the creditor will begin to take action against the debtor unless the debtor clears his debts. This article will guide you on how to service statutory demands in the UK, to individuals or companies; and what you need to know about winding-up petitions.
Statutory Demands UK
Statutory demands in the UK are issued in accordance with the Insolvency Act 1986 (IA86). The UK statutory demands serve a bankruptcy petition against an individual debtor under Section 268 of IA86, as a prerequisite to the presentation by a creditor. Then a company under Section 123 of IA86, as a precursor to a winding-up petition. In either case, there is no need to award a judgment against the debtor, but the debt must be undisputed.
Statutory Demands Individuals
Statutory demands can be served on individuals and companies that are in debt to a creditor. Individuals’ statutory demands in the UK follow the Insolvency Act 1986 (IA86). As well as a company in debt to a creditor.
When a creditor issues a statutory demand to an individual debtor in the UK, the creditor demands the individual’s debt payment within 21 days. If the debtor owes more than £5,000 and cannot pay his or her debts within 21 days. In default, the creditor may present a bankruptcy petition against the debtor.
However, if the creditor disputes statutory demands or winding-up petitions against a company in the UK, If the company owes the creditor more than £750 and fails to restrain the creditor from presenting a winding-up petition. The creditor can use the statutory demand as grounds to present a petition to the court for a winding-up order.
Moreover, If a creditor serves statutory demands or winding-up petitions against his debtor and the debtor raises a dispute against them, If the creditor refuses to withdraw it, he may have to pay the debtor’s legal costs for setting aside the statutory demand against an individual or for an injunction preventing the presentation of a winding-up petition by the creditor.
The costs payable by the creditor on setting aside or the granting of an injunction can range from £2,000 upwards. It is important for a creditor to realize that withdrawing the demand is not an admission that the debtor does not have to pay. But it is merely a recognition that there is a genuine dispute or triable issue for a court to decide.
Service of Statutory Demands
A creditor can service a statutory demand on the debtor in various ways. One of the safest methods of ensuring the service of a statutory demand on the debtor is to personally serve the demand on the debtor. By handing it to the individual, or in the case of a company, by leaving it at the registered office address.
If the creditor gets to know the debtor’s current residential address, the creditor may send a mail to the debtor. However, this service of statutory demands is not ideal because the mail may or may not reach the debtor, and this will create a niche for the debtor to deny ever receiving the demandÂ
However, statutory demands service can come by emailing them to an address that is common to the debtor. It is helpful in these cases to also send a copy by post. Here, the debtor is sure to receive it. But if the debtor denies receiving it and throws an argument over that If it is an individual debtor. The court will verify the service of statutory demands that the creditor petitions against the debtor before presenting any bankruptcy petition.
Also, when a creditor issues a bankruptcy petition to his debtor. He must file the evidence of service of the statutory demands in the form of a Witness Statement with verification by a Statement of Truth. If the creditor fails to do so, the court may not agree to issue a petition if the service of the statutory demand is not up to their satisfaction.
What Do You Need to Do When You Receive a Statutory Demand
You have several options if you receive a statutory demand. But it’s very important not to ignore it if you don’t want to become bankrupt. If you ignore a statutory demand, the chances are that your creditor(s) will apply to make you bankrupt. So you need to act very fast in responding to it, to avoid the prospect of insolvency. For individuals that may receive service of statutory demands by their creditor, here is what you need to do:
#1. Apply to set aside the statutory demands
An individual who receives a statutory demand will have 18 days from the date of service in which to apply to the court to ‘set aside the demand. However, if the debtor can either pay for the debt, secure a short time to make the payment, or make a dispute against the demand. If you apply to set aside a demand, you must have written evidence proving either there is a valid dispute, or the debtor does or will have the means to pay within a reasonable period of time. These applications must have proposals for the payment of the debt.
#2. Full Or Installment Payment
You can make a full payment If you accept that you owe the debt and can afford it, this is an easy way to deal with a statutory demand. But if you don’t have the money in full, you can offer to pay by installment. Your creditor may accept an offer from you to pay off your debt in installments. They may prefer this, as they’d probably receive more money this way than they would by making you bankrupt. It may offer you an affordable way to sort out your debt problem.
#3. Set Up An Individual Voluntary Arrangement (IVA)
If you have some valuable assets or a regular income, you can set up an individual voluntary arrangement (IVA) as an alternative to bankruptcy. An IVA is a legally binding arrangement to pay your creditors over a set period of time. It can be expensive to set up, but maybe it’s a better solution for you than going bankrupt.
Secure Your Property Against Debt
You can secure your properties by offering insurance on them. This could help you repay your debts. For example, you own your home. You can offer creditor security or insurance, which will help you repay your debts. So that when you sell your home in the future, you can use it to clear up your debts. This is called a voluntary charge. You should always seek specialist housing advice before agreeing to a voluntary charge on your home.
Ask Your Creditor To Write Off The Debt
You can ask your creditor to write off your debts If you have no income or belongings of value and no other way of paying what you owe, you should explain this to the creditor. They may decide not to continue taking action against you or try to make you bankrupt (which they would have to pay for) when they realize they won’t gain anything by doing so.
Reduce The Amount You Owe
You can also make a payment towards your debt that reduces the amount you owe to below £5,000, your creditor can’t apply to make you bankrupt. But if you accept that you don’t have a way of paying the debt, your creditor can make you bankrupt.
You may not be able to come to an agreement with your creditors. or you may decide that bankruptcy is the best option for you. If this applies to you, it’s best not to acknowledge the statutory demand or communicate with the creditor in any way.
If a creditor serves a statutory demand against a company, These are the things you need to do.
- Pay, negotiate, reduce, or defer the amount your creditor is demanding.Â
- Seek an injunction to prevent your creditor from winding up your company
- Wait for the creditor to issue a petition. You can file a dispute against the petition to wind up the company.
Statutory Demands and Winding Up Petitions
Statutory demands usually come before winding up petitions. Here, a creditor issues a written document against his debtor. Signaling that he will begin to take action to prove the debtor insolvent unless the debtor pays his debts on an agreed arrangement. While any creditor can serve you with a statutory demand, The HMRC uses it frequently to chase unpaid tax debts.
A creditor can serve his debtor with Statutory demands after he has exhausted all other avenues of recovering the money his debtor owes. If your creditor issues your limited company with a statutory demand; You must answer within 21 days or face further action. You can either pay the money you owe in full, installments or otherwise come to a mutually agreeable plan on how to clear your debts.
Although issuing a statutory demand requires no court involvement; this should not give you the impression that you underestimate the seriousness of such a notice. Statutory demands are usually the first step towards legal action, which could lead to the liquidation of your company or the bankruptcy of individuals if there is no appropriate response. Hence, the creditor may issue winding-up petitions if the debtor ignores or disputes against service of the Statutory demands by the creditor.
Winding-Up Petitions
Winding up petitions is the most serious action a creditor can take against a company that refuses to pay its debts. If your company owes at least £750 and fails to pay the amount due within 21 days. The creditor (temporarily £10,000), can petition the courts to wind up your company. By issuing a winding-up petition (WUP), the creditor is asking the courts to liquidate your company; in order to settle the outstanding debts with the proceeds, they will get from winding up the company. Issuing a WUP costs a creditor £280 in court fees plus a £1,600 petition deposit, so you should not underestimate how serious they are about forcing your company into liquidation.
Once your company receives a winding-up petition, Your options are few and far between unless you are unable to pay the amount you owe your creditor. It may be possible to propose a Company Voluntary Arrangement (CVA) in order to restructure your liabilities. Although time is of the essence, you must act quickly. Administration is another tool that may help if your business is moving. Failure to respond to the WUP will result in a winding-up order by your creditor. So it is prudent to act wisely and quickly.
It’s important to note that individuals may be petitioned for bankruptcy orders. If the debtor takes no action after the creditor’s service of statutory demands. While the creditor offers the company a winding-up petition.
Statutory Demands FAQs
When can you use a statutory demand?
A statutory demand can be a useful way to try to force a debtor (company or individual who owes you money) to make payment to you.
Who can issue statutory demand?
A creditor can make a statutory demand for payment of a debt as long as there is a debt that is due and payable. Companies served with a statutory demand have 21 days to either pay the money owed or to make an application to set aside the statutory demand.
What happens if you ignore a statutory demand?
An individual who ignores a Statutory Demand, either by not paying the debt or making a mutually acceptable arrangement with the creditor, is at risk of being ordered bankrupt.
Can you serve statutory demand by email?
More commonly, demands are served by email to an address known to be regularly used by the debtor. It is helpful in these cases to also send a copy by post. Once acknowledged, the debtor is unlikely to have an argument that the demand was not received.
