A Statutory Demand can easily be overlooked as it may seem like an innocuous piece of paper. Do not be fooled.
Nasty letter that can lead to bankruptcy court
Tim Calloway, a consultant solicitor with Hatchers in Shrewsbury specialising in commercial litigation and dispute resolution, explains why you must never ignore a statutory demand...
If your business is under pressure, with restricted cash flow as customers take ever longer to pay and suppliers press ever harder, events can go from tricky to calamitous surprisingly quickly. The fact is, in today’s unforgiving economic climate more creditors are prepared to see their debtors in the bankruptcy courts rather than go through the county court process.
Even if you have things generally under control but are being pressed by one or two big creditors, you need to be aware of the consequences of being served with a Statutory Demand. This nasty document can herald the arrival of a winding up petition or bankruptcy petition, so failure to take action in response to a Statutory Demand can be fatal to you and to your business.
Worryingly, a Statutory Demand is often overlooked (particularly if it comes to you through the post) because it may seem like such an innocuous piece of paper. There is some dispute as to whether a Statutory Demand must be served personally, but it is known that some debt collection agencies serve the demand by post, sometimes accompanied by a relatively gentle letter.
Do not be fooled. A Statutory Demand is an extremely serious document. Stated simply, it is a demand for payment of the debt due, or alleged to be due. Failure to respond within the appropriate timescale would justify the creditor in issuing a bankruptcy petition (if you are an individual) or a winding-up petition (if you are a company).
If you dispute the debt – or just part of the debt – then it is imperative that you move quickly to apply to have the demand set aside. You have only 21 days from the date of service to make that application. You will certainly need legal assistance for this, as it is not the simplest of processes.
Tough-talking creditors should be aware that if there is a genuine dispute about the sum claimed, the court will be inclined to set the demand aside, because the court does not approve of creditors using a Statutory Demand as a strong-arm or steamroller tactic against debtors. If there is a genuine dispute, then the appropriate forum is the county court, not the bankruptcy court or the companies court.
You may have a genuine dispute with your creditor over, for example, the quality of the goods, late delivery, or whatever, but if you fail to raise these arguments within the 21-day time period you may find yourself more or less prevented from raising those arguments at a later stage.
If no steps are taken to apply to set aside the Statutory Demand then you can be sure that either a bankruptcy petition or a winding-up petition will follow, and the court will not take kindly to arguments being raised at the last minute.
The advice then is extremely clear and simple. If you are served with a Statutory Demand do not ignore it. Consult your solicitor at once.
Tim can be contacted on t.calloway@hatchers.co.uk or 01743 248545.
