A statutory demand is a way to demonstrate that you are owed an undisputed sum of money by an individual, the sum owed exceeds £5000 and the debtor hasn’t paid it. The debtor has 3 weeks to make payment of the debt once he/she has been served with a statutory demand. If the debtor fails to make payment, the creditor can present a bankruptcy petition against the debtor for him/her to be declared bankrupt.
Serving a Statutory Demand
The statutory demand must be in the prescribed form and meet the strict requirements as set out in rule 10 of the Insolvency Rules 2016. It must be completed and served correctly.
The statutory demand must be served personally on the debtor. If this cannot be done, other methods of service may be accepted by the court. For example, if you have a judgment against the debtor who is attempting to avoid service of the statutory demand, the rules permit you to advertise the statutory demand, which may be treated as good service of the demand.
You can present a bankruptcy petition from any time after 21 days from the date of service (providing it is not formally challenged by the debtor) but you must present the petition within 4 months of service of the demand. If a petition is not presented within the 4 months’ time limit, a fresh demand may need to be served.
Serving a statutory demand can be a quick and inexpensive way to ascertain whether a person intends to pay the money owed to you. However, should you get it wrong, and the debtor applies to set-aside the statutory demand, you may have to pay his/her legal costs.
Challenging a Statutory Demand
A statutory demand is treated as valid unless it is set aside by the court. You have 18 days to apply to the court to set the statutory demand aside. If you do not do this in time and a bankruptcy petition is presented against you, the right is lost.
The steps required to apply to the court:
- The application to set aside the statutory demand must be issued by the court;
- The application form must be accompanied by a witness statement;
- The application will be stamped with the court seal and given a hearing date.
Once this happens, the time for compliance with the statutory demand stops running until the application is decided by the court. If any of the documents are not in the right form, set out sufficiently to challenge the demand, sent in to the right court or received by the court, the application may not be issued in time and you will have to apply to the court for an extension of time.
Note: this could be an expensive and high risk process and it is important to get the application to set aside the statutory demand right.
Below we set out some of the ways in which you may be able to challenge or respond to a statutory demand served on you:
- There is a genuine dispute on substantial grounds. Case law states that the dispute “must be real as opposed to frivolous”;
- You have a counterclaim, cross-demand or set-off that is equal to or exceeds the debt;
- There may be procedural grounds by which the statutory demand can be challenged. For example, the statutory demand may not be served on you in accordance with the rules or the statutory demand may not contain sufficient information concerning the debt;
- You may be able to negotiate a payment of the debt in instalments; however, you should be mindful that whilst negotiations are ongoing, the creditor has the ability to issue a bankruptcy petition against you. Therefore, it is best to obtain confirmation (preferably an undertaking) from the creditor that they will not issue a bankruptcy petition until negotiations are concluded;
- If you do not dispute the debt or are unable to find suitable grounds to challenge the statutory demand, then you can make payment of the debt.
If you are a creditor and wish to serve a statutory demand on an individual, please see our debt collection price guide, which sets out our fixed fees for preparing and serving a statutory demand.
If you are an individual who wishes to challenge a statutory demand, we shall provide you with an estimate of our fees based on the type of work required.
For more information, please email litigation@grantsaw.co.uk or contact our insolvency experts on 020 8858 6971.
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