If your business is owed money, one of the options for recovering the debt is to serve a statutory demand on the individual or company who hasn’t paid you. This is done as the first step in the winding up proceedings.
In this article, we’ll cover many of the questions our business dispute solicitors are commonly asked in relation to serving statutory demands, including how to serve one, the costs associated with it and what to do if the debtor ignores the demand.
Contents:
- What is a statutory demand?
- Can anyone serve a statutory demand?
- Can you serve a statutory demand if the debt is disputed?
- How much does it cost to serve a statutory demand?
- How do you serve a statutory demand?
- Can you claim legal costs for a statutory demand?
- What should you do if a debtor ignores a statutory demand?
- Can you withdraw a statutory demand after serving it?
- What are the alternatives to serving a statutory demand?
- Summary
What is a statutory demand?
A statutory demand is a formal written demand for the payment of a debt. It signals to the debtor that if they don’t repay what they owe you within 21 days of being ‘served’ with the demand, you’ll begin bankruptcy proceedings (if the debtor is an individual) or winding up proceedings (if the debtor is a company).
It’s also worth bearing in mind that you can’t serve a statutory demand if the debt is over six years old.
Can anyone serve a statutory demand?
It’s possible for anyone who’s owed money to serve a statutory demand, whether you’re an individual or acting on behalf of your business.
Can you serve a statutory demand if the debt is disputed?
If you’re aware that the debt is disputed, and that the dispute is genuine, then you shouldn’t serve a statutory demand on the debtor. If you’re not sure if a challenge to the debt is genuine, it’s best to take advice from a solicitor who can help you understand the different options available to recover the debt.
How much does it cost to serve a statutory demand?
There isn’t a court fee to pay for serving a statutory demand because the court isn’t involved in this initial step (and the demand isn’t classed as an official court document), but there will be legal fees to pay if you seek help from a solicitor to put the demand together, which is recommended in order to minimise the risk of making a mistake.
It’s also a good idea to enlist the help of a process server, who will personally serve the demand on the debtor, whether that’s an individual or a company, and provide you with proof of this. A process server is a skilled professional when it comes to delivering important legal documents and again, paying for one to serve the debtor with the demand reduces the likelihood of something going wrong with service when it comes to the (very specific) rules on this – which could derail your attempts to recover what’s owed to you. Process server fees can vary, but they usually charge fixed fees within the region of £100.00 to £150.00 for non-urgent matters depending on the location of the debtor.
How do you serve a statutory demand?
There are a few factors to consider when it comes to how to serve a statutory demand, which we’ll break down in more detail below:
What information must be included in a statutory demand?
The information included within a statutory demand varies slightly according to whether you’re serving the demand on an individual (including partners in a partnership) and whether the debt is payable now, following a court judgment or order, or whether it’s a limited company that has a debt owing to you.
Some – but not all – of the key information you’ll need to include, depending on whether the debtor is an individual or a limited company, is:
- The identity and address of the creditor (you) and the debtor
- Details of the debt and how it arose
- Details of any interest (or other charges) that are accruing
- A statement that any application to set aside the demand must be made within 18 days of service on the debtor (only applicable to an individual debtor)
- A statement that if the debtor doesn’t apply to set aside the demand within 18 days or otherwise deal with the demand within 21 days after its service the debtor could be made bankrupt, in the case of an individual debtor – or in the case of a limited company, a statement that the debt must be paid, or an attempt made for settlement, within 21 days after service, if the company wishes to avoid a winding up petition being presented.
- An authorised signature, along with the date of the demand.
What do you need to know about serving the demand?
You can’t serve a statutory demand by email or other electronic method in the first instance. It is highly recommended that you instruct a process server to serve the statutory demand on your behalf as they’ll ensure that the rules are adhered to and that you’re provided with proper proof of service.
The rules state that a statutory demand must be personally served on the debtor where possible if it’s an individual and if it’s a company, it should be served by leaving it at the company’s registered office.
What time limits do you need to be aware of when serving a statutory demand?
As long as the debt isn’t more than six years old, you can serve a statutory demand at any time. As a general rule, you must then wait for three weeks to pass before you present a petition for bankruptcy or the winding up of a company.
Can you claim legal costs for a statutory demand?
At the stage of serving a statutory demand, there’s no general rule in place to say that the debtor is obliged to pay your legal costs for making the demand – but it’s best to seek legal advice to check what’s the most appropriate course of action in your circumstances. It might however be the case that you can claim for the costs further down the line if the matter reaches a court hearing to petition for the debtor’s bankruptcy or winding up, in the case of a company.
What should you do if a debtor ignores a statutory demand?
It’s definitely best to speak with a solicitor first to get their advice if a debtor ignores your statutory demand. Technically, if the debtor does this, then after 21 days pass since the date of service, you’re entitled to:
- Begin bankruptcy proceedings against them if they’re an individual and they owe you £5,000 or more.
- Begin winding up proceedings against them if they’re a company and the company owes you £750 or more.
It’s important to highlight that you must take one of the steps above within 4 months, or you’ll need to explain why there has been a delay to the court that’s named on the statutory demand and then the court has a discretion to strike out the petition.
Can you withdraw a statutory demand after serving it?
It’s possible to withdraw a statutory demand after you’ve served it on the debtor and the debtor should be put on notice of the withdrawal in writing. There isn’t a formal procedure to follow for doing this. Typically it is usually done by letter.
What are the alternatives to serving a statutory demand?
There are usually different options available when it comes to recovering debt, depending on the specifics of your situation. As such, alternatives to serving a statutory demand on the debtor might include:
- Attempting to negotiate a payment plan with the debtor.
- Considering whether engaging in a process such as mediation or arbitration might be appropriate.
- Commencing debt recovery litigation proceedings in court. The first step with this would be to send the debtor a letter before action (‘LBA’).
Summary
Serving a statutory demand on a debtor is a serious step and in light of the strict nature of the rules involved in taking this course of action when it comes to considering whether there is a bona fide dispute, getting the contents of the demand correct and also making sure that service of it is effected properly, it’s crucial to take legal advice from an experienced insolvency solicitor as early as possible. Doing so enhances your prospects of recovering the debt without risking further disruption or delays to the running of your business.
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