What is a Statutory Demand and how could it affect your company?

Updated: 2nd December 2021

When a creditor is owed £750 or more and has attempted to collect their money without success, they may resort to sending a 21-day Statutory Demand for payment. This figure has increased to £10,000 as per the Government's temporary measures which will apply for the period 1 October 2021 to 31 March 2022. This procedure requires no court involvement, and is often used by creditors such as HMRC to collect their debts quickly.

Unsecured creditors generally use this as a last resort when they are owed a significant amount of money, and it represents one of the most serious threats that a creditor can make against your business.

What happens after a Statutory Demand has been issued?

It is probable that a winding up petition will follow if the Statutory Demand remains unpaid and unanswered. This is likely to lead to the compulsory liquidation of your company, should the petition be approved by the court.

Any company director in receipt of a Statutory Demand will benefit greatly from the knowledge and expertise of a professional Insolvency Practitioner. Begbies Traynor operates from offices around the UK, and can offer advice on how to respond to the threat of legal action against your company.

If action is not taken swiftly to rebuke the demand for payment, the sequence of events that follows could result in the liquidation of your business. In the vast majority of cases, a Statutory Demand simply precedes further serious legal action against the delinquent company.

Timeline following a Statutory Demand

You have 18 days in which to act to set aside the demand.

The probable course of events is described below:

  • A creditor petitions the court to wind up the company, citing non-payment of the Statutory Demand as their reason
  • The winding up petition is advertised in the London Gazette
  • Because banks check the Gazette for notice of insolvent companies, your business bank accounts will be frozen
  • Other creditors may hear about the company’s financial position, and begin their own legal action
  • After a period of seven days, the court can issue a winding up order which sets in motion the liquidation of company assets in order to meet creditor demands
  • Following liquidation, your business will cease to exist.

This outcome, although not inevitable, can happen very quickly. It is most important, therefore, to check the validity of the Statutory Demand served on you as soon as it is received.

Remember, you have only 18 days to act if you are to successfully set aside this demand through court process.

Setting aside a Statutory Demand

‘Setting aside’ a Statutory Demand means having it cancelled by the court. Several elements of the demand need to be carefully checked, including the legitimacy of the specified debt – whether it is correct in full or only in part, and if the required legal procedures have been followed by the sender.

Not adhering to specific rules and regulations could render the demand invalid. It must be presented on a Statutory Demand Form 4.1, and delivered to the company’s registered address in one of the following ways:

  • By hand
  • By registered post
  • Signed for by an officer of your business.

Just as the creditor must complete the correct forms and serve the demand in a given format, you as the recipient need to make sure that you also use the prescribed forms in challenging the situation.

There must be a genuine dispute to be able to challenge the demand. Sometimes a creditor may considerably ‘inflate’ the cost of their labour or time within an invoice, and if it comes to light that the debt was in genuine dispute, the creditor could face accusations of abusing court process.

Some unscrupulous creditors use Statutory Demands in the hope that debtors will succumb to pressure and the threat of liquidation. If, however, there is only a small mistake in the amount owing, the Statutory Demand is unlikely to be set aside.

The value of receiving professional help in these circumstances cannot be underestimated. It would be a travesty if your company was liquidated simply because you failed to comply with administrative requirements.

We are the UK’s market leader in corporate recovery, and can assist at every stage of this process.

What are valid reasons for reversing a Statutory Demand?

You may be successful in having the demand rescinded if one or more of the following are true:

  • The amount stated in the demand is in dispute, or is less than £750 (temporarily £10,000)
  • The creditor holds security equalling or exceeding the debt
  • You are paying by instalments and have not reneged on any payments
  • You are owed money by the creditor
  • The demand was made in error
  • The creditor failed to use the correct forms and/or required method of serving the demand.

If your challenge is accepted by the court, a hearing will be called to discuss the debt and the payment deadline suspended pending this hearing. Should your application be successful, the demand will be rescinded and the creditor will face liability for all court costs.

Begbies Traynor can advise your company on the best course of action to take on receipt of a Statutory Demand. We have more than 70 local offices and offer a same day consultation.

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