What is a statutory demand?
A statutory demand is a formal written request from a creditor for the payment of an unsecured debt due to it within a period of 21 days from the date of service of the demand.
If you are a creditor, this can be a useful tool for you to pursue your debtors for their outstanding balances. However, if a statutory demand is served on your company for an unpaid debt, it can have significant implications for both the company and you personally if you are a director and/or shareholder. Similar provisions apply for personal debt which could lead to personal bankruptcy.
What are the implications of a statutory demand?
Provided the debt is greater than £750 (or, if the debt is disputed, the undisputed element of the debt is greater than £750), if the debt is not paid within 21 days, then the creditor may present a petition to Court to wind-up the company.
Under UK insolvency legislation, where a statutory demand has been served on a company, failure by that company to pay a debt which is not disputed is evidence of insolvency and the Court will issue a winding-up order for the compulsory liquidation of the company. The company’s business and assets will initially be taken under the control of the Official Receiver and your powers as director of the company will be suspended.
As director, your conduct and management of the company will be considered to establish whether you are fit to act as a director in the future. The liquidator will also consider historical events, including any disposals of company assets or distributions to shareholders, to establish whether any of these events should be overturned and the assets/funds returned to the company for the benefit of its creditors. The liquidator will also consider whether, as a director, you continued to trade the company at a time when it was insolvent to the detriment of the company’s creditors. Actions can be brought against you personally for all of these events and can result in the liquidator seeking a recovery from your personal assets.
My company has received a statutory demand, how do I deal with it?
If your company is served with a statutory demand, you must act promptly to avoid the creditor being able to petition for the company’s liquidation. Further proceedings can be prevented by the following actions:
- pay the full amount immediately or reduce the debt to below £750 within 21 days
- negotiate with the creditor to reach agreement over a settlement figure, or agree payment instalments
- apply to the Court to have the statutory demand set aside.
You should take all threats of a statutory demand seriously as you cannot be certain of the creditor’s intentions and whether they will ultimately petition for the liquidation of your company.
Can I have a statutory demand set aside?
You can apply to have a statutory demand set aside when there is a genuine dispute about whether the debt exists. Further information is available from the Insolvency Service website at www.insolvency.gov.uk.
If you or your company are currently suffering financial difficulties, by contacting an Insolvency Practitioner at early stage you can receive advice regarding the options available to you which could assist in the turnaround of your business, and the avoidance of formal insolvency proceedings.
Please contact one of our Restructuring & Insolvency partners if you require any further information or assistance in connection with this or any other insolvency matter.
Date: 17th September, 2009
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