The consequences of issuing a statutory demand
Once you serve a statutory demand, if the debt is not paid within 21 days, you can apply to wind up the company or make the individual bankrupt.
Only issue a statutory demand if there is no dispute that you are owed the money. If you serve a statutory demand and then issue a bankruptcy or winding-up petition, the court must stop the proceedings if there is any dispute about the sum outstanding.
It is relatively easy to have a statutory demand set aside, and the court can order for costs against you.
Remember that issuing a statutory demand is a serious step. It should not be used unless the relationship with the person who owes money has totally broken down.
To issue a statutory demand, the party must be solvent and the debt must be for at least £750 (where the debtor is a company) or £5000 (where the debtor is an individual). The statutory demand gives the person 21 days' warning to settle the debt.
Reasons for issuing a statutory demand
Issuing a statutory demand is simple and cheap.
A statutory demand can be served as soon as the debt is due and it is not necessary to obtain a court judgment first. It can be sent by recorded post or put through a letterbox if it can’t be delivered in person. Make sure you keep a copy of the statutory demand and anything that confirms the time and date the demand was served. You might need this information if your statutory demand is ignored.
The receiving party will often respond by paying immediately. Alternatively, they can offer property as security, or agree to pay in another way, such as through instalments.
A statutory demand can be an effective debt collecting device in its own right, without the need to proceed to a winding-up petition.
Frequently, a statutory demand is used as a 'bluff', and it is actually rare for it to be followed by a petition for bankruptcy or winding up.
What to do next if the payment is still not made
If the party does not either pay or respond within 21 days, the next step is to apply for a bankruptcy petition or a winding-up petition. If the court finds in your favour, the other party must be wound up or made bankrupt.
Be warned you still may not be paid! Unfortunately, as the bankruptcy/ winding-up petitioner, you do not get priority over whatever money is available.
If you have any concerns about issuing a statutory demand, we recommend that you Ask a lawyer for advice.