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Statutory Demands: Legal Process and Consequences

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As a business owner, obtaining customer payments is crucial to running your business smoothly. You likely invoice and pay you later as their creditor for some of your customers, such as other companies you do business with. You may also give credit facilities to individuals purchasing your business services or products. However, your debtors could fail to pay their debts, leaving you chasing them for payment. One way to consider dealing with an outstanding debt is through a formal demand called a statutory demand to get the debtor’s attention. This article will explain statutory demands in terms of the legal process and consequences.

What is a Statutory Demand?

A statutory demand is a legal document demanding that a debtor pay you money within 21 days. It also acts as proof that they owe you the debt. A statutory demand is not a form of court proceedings for chasing a debt. However, you must follow a specific legal process to serve one, as found in the Insolvency Act 1986. 

When Might I Use a Statutory Demand?

You can use a statutory demand where the money owed is more than £750 and can do so as soon as your debtor’s debt to your company becomes due. However, you cannot use one where you do not know the exact sum owed to you and generally cannot if the debt is older than six years, 

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You may also use a statutory demand to start the process of making an individual bankrupt or winding up a business. The former is possible where the individual owes you at least £5000 and the latter where a company owes you at least £750. 

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When you serve a statutory demand, the legal process or rules of service must be correctly followed. For example, you may need the statutory demand in the future for legal proceedings regarding the debt claim. Therefore, it is advisable to get legal advice before issuing a statutory demand. 

A statutory demand must, therefore, contain specific information, which includes:

  • your name and address as the creditor;
  • details of who the debtor is;
  • the level of debt, including any interest;
  • what the debt is for;
  • where applicable, the date of the court order or court judgement;
  • how to comply with the statutory demand and to do so within 21 days; 
  • that there is a right how to request that the statutory demand be set aside and to do this within 18 days; and
  • a statement about the threat of bankruptcy proceedings.

It is also crucial to serve the statutory demand in person, often through a process server or by post, and you need to keep a record of serving it. You must also sign and date the statutory demand as the creditor, and it should follow a specific format as detailed in the Insolvency Rules 2006. Template statutory demand forms are available, which are SD1 and SD2. SD3 and SD4 forms. Which you use depends on the details of the types of debt, and your dispute solicitor will be able to advise you on this.

You should note that serving a statutory demand does not involve a cost or court fees.

Consequences of Statutory Demands

There are various consequences of issuing statutory demands. As a creditor, you naturally hope to receive payment of the debt in full and as soon as possible. However, the debtor does have the option of agreeing to pay by a specific date.

The debtor may dispute the debt, which is not a prospect your business will wish to face. However, this cannot occur where you serve a statutory demand due to a court judgment that supports the debt being due. 

A further consequence is that failure to follow the rules on serving a statutory demand can also make the debt claim ineffective. Also, errors in statutory demands can cause the court to set the statutory demand aside.

When you serve a statutory demand on a business that you regularly trade with, it could ruin the business relationship moving forward. Therefore, it is crucial to consider this before you decide on a statutory demand. 

Key Takeaways

As a creditor, your business may serve as an individual or business with a statutory demand. This is a legal document demanding that they pay you the debt they owe you. You can serve a statutory demand where the debt is at least £750 and has reached the date your debtor needed to pay it by. There are no costs involved, such as court fees, if you wish to serve a statutory demand, but following the legal rules is essential, as you may need the demand for future court proceedings. It is crucial, therefore, that you take legal advice. 

For example, there is a specific format to follow, and particular information needs to be concluded, such as the amount of debt and what it is for. You should also serve the statutory demand in a specific way and keep a record of this. There are also consequences of a statutory demand. These include the debtor paying the money in full or disputing the debt and applying it to the courts to set it aside. There can also be consequences on future business relationships. 

If you need help understanding statutory demands in the UK, LegalVision’s experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.

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Clare Farmer

Clare Farmer

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