Receiving a statutory demand is a serious warning that your company could be in financial difficulties. Should you end up having one land on your doorstep, it is essential that you seek specialist and independent advice at your earliest opportunity to prevent the situation from getting worse.
In this article, we will outline how to respond to a statutory demand and why securing an early resolution is so important.
What is a Statutory Demand?
Before we discuss how to respond to a statutory demand, it is first of all important to outline what they actually represent. A statutory demand is basically a written warning from your creditors that they may start court proceedings against you or your company if you fail to satisfy debts or come to a suitable arrangement.
If a creditor wishes to take legal action to try and recoup what they are owed, they must follow a strict process. Issuing a statutory demand is the first step on this journey. Its purpose is to determine whether or not you have the means to satisfy your debts. Should you be unable to do so, your creditors will use your response as evidence and can apply to make you bankrupt.
A statutory demand is valid for a period of four months. If you fail to respond or comply with the demand within this timeframe, your creditor can apply to the courts to declare you bankrupt, or start winding up proceedings against your business. Should a creditor want to escalate a statutory demand that is more than four months old, they must first of all seek permission from a court.
Does a Statutory Demand Affect Credit Rating?
Statutory demands are not recorded on your credit file. If you are able to comply with them successfully, your credit score will remain unaffected. Should you not be in a position to satisfy your obligations and are later declared bankrupt, it will appear on your credit rating once the bankruptcy terms have been approved by the official receiver.
How to Respond to a Statutory Demand
You have several options if you receive a statutory demand. The important thing is not to ignore the situation, as it will ultimately get worse and could mean you lose everything you have worked so hard to achieve.
Your options on how to respond to a statutory demand can be divided into two clear categories, which are:
Comply with the Statutory Demand
If the contents of the statutory demand are valid and you accept the amount you are said to owe, the easiest thing to do is comply with your creditors’ wishes – if you are able to. This can either be in the form of paying off your debt in full, or making an arrangement with them to pay what you owe in instalments.
Another potential option is through a settlement offer. This is where you ask your creditors to accept a lump sum of money (which is less than the total amount you owe) in full and final settlement of your debt. If your creditor agrees to this, the remainder of the debt will be written off as long as you comply with the terms of the agreement. For more information about settlement offers, please read our blog on the subject.
The final way you can comply with your statutory demand is by agreeing with the creditor to secure the debt against another asset. However, we would strongly recommend you obtain specialist advice before doing this.
Whichever way you choose to comply with the statutory demand, it is essential that you do this within 21 days of setting up your agreement. If you do not, your creditors could start bankruptcy proceedings or issue a winding up petition against you.
Apply to have the Statutory Demand Cancelled
Should you believe that the statutory demand is incorrect, you can apply to a Court to have it cancelled, or “set aside”. To do this, you will need to fill out two forms explaining why you believe the request for payment is invalid. These are:
- An application to set aside the statutory demand
- A witness statement in support of the application
The above process applies for England and Wales only. Scotland and Northern Ireland have their own processes, so it is important to ensure you are complying with the rules in the right jurisdiction. You will have 18 days from when the demand was issued to file your application with the Court.
It is important to note that you should only apply to have a statutory demand set aside if you have proper grounds to do so. If you try to use the process as a delay tactic and get found out, the courts could issue you with a costs order – thereby increasing your debt even further.
The proper grounds for setting aside a statutory demand include:
- You dispute the debt in full or in part
- The amount is less than £750 for a company or £5,000 for an individual
- You have a counterclaim against the amount due
- The statutory demand was not served or prepared correctly
- There are ongoing proceedings to decide the validity of the debt, and the statutory demand was a way to circumvent this
Once you have submitted your request to have the statutory demand set aside, your creditor will be given the chance to put forward their own evidence that the debt is indeed due. A hearing will then take place to decide whether the statutory demand should be cancelled or not.
If it is deemed that the statutory demand should stand, your creditor can either apply for a winding up petition against your company, or start up bankruptcy proceedings against you personally.
What Happens if You Cannot Satisfy Your Obligations?
Should you be unsuccessful in having your statutory demand set aside, or are unable to pay your debts, it is essential to take expert advice on your options. Depending on whether you are a partnership, limited company or sole trader, the options may include:
- Individual voluntary arrangements (IVAs)
- Partnership voluntary arrangements
- Creditors voluntary liquidation
- Company voluntary arrangements
Please be aware that these options become even more limited if a winding up petition has been issued against your company. As a result, you should seek expert assistance at your earliest opportunity to give you the best possible chance of success.
How Inquesta can Help
At Inquesta, we work tirelessly to put the needs of our clients before everything else. We understand that having to deal with statutory demands can be extremely stressful, which is why we will work with you to achieve the best possible outcome.
Our team will take the time to understand your individual circumstances and guide you through all the options available to you. This gives you the peace of mind you need that you are working with someone who has your best interests at heart.
To find out more about how Inquesta can help you, contact a member of our team today or book a no-obligation consultation.