A statutory demand is a formal written document demanding payment of a debt within 21 days. If the debtor does not pay within the 21 period, and either fails to apply to have the demand set aside (where the debtor is an individual) or fails to apply to restrain the creditor from presenting a winding-up petition (where the debtor is a company), the creditor may use the statutory demand as grounds to present a petition to the court for either a bankruptcy or winding-up order.
A statutory demand can be used to support the presentation of petitions because non-payment of a statutory demand within 21 days may be deemed evidence of the debtor’s inability to pay its debts (in the case of a company) or to pay the debt demanded (in the case of an individual).
To send a statutory demand to an individual or company it should be noted: –
A debtor may apply to the court to set a statutory demand aside. The application must be made within 18 days of service of the demand. There are four grounds on which the court can set aside a statutory demand:
If the creditor has been in correspondence with a debtor, and the debtor has raised a defence to the sum claimed, or other legitimate issue, careful consideration will need to be given to what the debtor says. What the debtor says may constitute substantial grounds for disputing the debt. If so, the statutory demand procedure will not be the best route for the creditor to follow.
If an application to set aside a statutory demand succeeds, there may be costs consequences for the creditor if the debtor had made it clear there was a genuine dispute regarding the sum claimed. If so, an alternative option available to the creditor is to issue court proceedings (but not use an insolvency process).
There is no similar procedure for a company to apply to set aside a statutory demand. However, a company may apply for an injunction to restrain the creditor from presenting a winding up petition. Similarly, if the winding up petition has already been presented the company may apply for an injunction to restrain the creditor from advertising the petition.
The court will grant an injunction if the petition is considered to be an abuse of the process; a petition will be considered to be an abuse of the process if there is a bona fide (genuine) and substantial dispute over the debt. This route cannot therefore be used where the debtor has a genuine dispute to the claim.
Our Commercial Litigation and Debt Recovery Team regularly act for individual and corporate clients based in Essex, London, Europe and further afield. We can assist with:
The above is meant to be only advice and is correct as of the time of posting. This article was written by Nick Hatchett, Partner in the Commercial Litigation Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of June 2023.