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30 May 2018

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Statutory Demands

Posted by: Hannah Vachre

A Statutory Demand is usually seen as the first step in the insolvency process, although it is not always necessary to serve this document in order to wind up a company. ‘Winding up’ is a method of liquidating a company and therefore dissolving its business by selling off its assets and satisfying its creditors from the proceeds of the sale. It can be done voluntarily by the company or forcibly by a creditor through the bringing of a Winding Up Petition.

Provided that a debt of over £750.00 is owed a creditor can serve a company with a Statutory Demand. If the demand remains unsatisfied the creditor is provided with the means to claim that the company is unable to pay their debts and consequentially insolvent and should be wound up by the Court.

Service of a Statutory Demand is usually an effective and relatively low cost way in seeking to recover a debt from a company. Insolvency proceedings are intended for undisputed debts and are therefore a serious and quick procedure which can have significant repercussions on a business if not addressed. This should cause a company to take the service of a Statutory Demand upon them seriously.

Once a Statutory Demand is served a company has either 21 days to pay the debt or 18 days to apply to Court to set the demand aside. After this timescale a Winding Up Petition can be brought by the creditor.

The outcome of a successful Winding Up Petition is a Court Order winding up the company. Even if the Petition does not ultimately lead to the granting of a Court Order serious damage can still be caused to a company’s business once a Petition is brought as the Petition needs to be advertised by the creditor which leads to the freezing of company bank accounts, enforcement action by other creditors and breaches of various agreements including business leases and loan agreements.

If your company is served with a Statutory Demand it is important not to ignore the document but address the issue directly to determine whether you are able to challenge the claim. If there is a genuine dispute concerning the debt an application to Court should be made to set aside the Statutory Demand and prevent the bringing of a Winding Up Petition by the Creditor.  If successful the Company can recover the costs of the application from the Creditor.

Should you wish to dispute the Statutory Demand it is important to ensure that any challenge is brought correctly as a failed application to Court may not only have cost consequences against you but could also prevent the company from advancing a defence which they may have had against the Winding Up Petition.

Insolvency is a technical area of law and therefore creditors often fail to adhere to the formalities in drafting and serving the Statutory Demand. In certain circumstances this can cause the demand to be invalid although minor errors are likely to be overlooked by the Court.

Given the nature of these proceedings it is recommended that advice is sought from a legal professional before any significant steps are taken. At Glaisyers Solicitors we specialise in insolvency matters and are able to assist you in either challenging a Statutory Demand or claiming a debt from a company which owes you money.

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Hannah is a solicitor in our Litigation department working on a wide range of matters for both individual and commercial clients.

Hannah Vachre - Solicitor

To discuss how Glaisyers can assist you contact Hannah Vachre on [email protected] or via 0161 832 4666.

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