A statutory demand is a notice issued by creditors which enables them to demand speedy repayment of a debt owed to them. Should the debtor continue to fail to repay their debt, reach an agreement over terms, or apply to have the demand set aside in court within the statutory period, the company could be deemed insolvent and liquidated.
If you, as a business owner or as an individual, are served with a statutory demand notice, the most important thing you need to do is act quickly. Given that a creditor does not need a court order to issue a statutory demand against you, it can come as a surprise — especially if you are not aware your firm is in financial difficulty.
The demand will specifically state whether the debt is expected to be paid in full, or in instalments. For a statutory demand to be issued, the creditor must have a firm belief that the debtor is capable of repaying the debt (including fees). Creditors will usually apply for a statutory demand if they believe the debtor secretly has enough funds to settle their obligations, or have evidence that the debtor has other assets that could be seized to pay what they owe.
After 21 days from the statutory demand being served, if the debtor has not paid in full, or come to some form of mutual arrangement, a creditor can begin more serious sanctions against them. Potential consequences can include bankruptcy, the winding up of the company, and significant legal costs. Everything that a company director will have worked so hard to achieve could be lost — so it is important to act upon a statutory demand as soon as possible.