Recovering debts and protecting your claim:Everything you need to know about Statutory Demands
What are Statutory Demands?
A statutory demand is a formal request for payment of a debt. If an individual is owed monies, known as a ‘creditor’ they may seek to recover those monies by way of a statutory demand. Once the ‘debtor’ is in receipt of a statutory demand they have 21 days to settle the debt or reach an agreed upon payment plan. If the debtor fails to act before this deadline the creditor may file to commence a bankruptcy proceedings (for an individual), or a winding-up petition (for a company).
Essentially, it is a process which is used to put pressure on a company to satisfy their debt to another company or individual. A statutory demand does not expire, if the debt is not satisfied after the 21 day period, the right to file a petition to wind-up the company arises and the requirement to pay the outstanding fee still stands.
When and why would it arise?
Usually, someone would issue a statutory demand if there is an undisputed and outstanding sum of money, such as an invoice, for which they have not yet been paid. For instance, if your company provides a service to another company or individual at an agreed sum of money, and you do not receive the agreed funds because the company is experiencing financial difficulty, you could seek to recover the outstanding money by issuing a statutory demand.
How does it work?
The first step in the process would be to send a letter informing the company of their outstanding debt. If there is no response after this, a solicitor may send a statutory demand on your behalf to seek the recovery of this debt. This places weight behind your request for debt recovery as an unfulfilled statutory demand, one which is not responded to or acted upon, does not expire and leaves a company vulnerable to being wound up and dismantled for assets to be used towards settling unpaid creditors. In many cases, the threat of vulnerability is enough to bring about satisfaction of the debt.
Pros and Cons
It is not uncommon for a company or individual who has been served with a statutory demand to refuse to comply. It is important to note that debt recovery by way of a statutory demand is only available where no genuine dispute exists against the sum of money due and owing, such as an undisputed invoice. In many cases it is a quicker, cheaper and more efficient way of recovering an outstanding debt; seeking to do so through a winding-up petition can be costly, and fees are not always recoverable. On the other hand, the debt does not always justify the costs of a winding-up petition. For instance, a company with relatively few assets will have these split between all its creditors. The cost of the process may not justify the recovery of the debt.
The most successful cases of debt recovery by way of a statutory demand are usually when the outstanding monies are not disputed, and the debtor company has sufficient assets to settle the debt, if the creditor were to go through with a winding-up petition.
It is vital that statutory demand proceedings are properly carried out as failure to withdraw an incorrectly issued demand, may result in the debtor seeking injunctive relief. This would set aside the statutory demand, prevent the dismantling of company assets, and you may be held liable for the legal costs incurred by the debtor if they are successful.
If you wish to issue a statutory demand, it is advisable to take proper instruction from a solicitor. Our dispute resolution and litigation lawyer, Michael Ridgwell, is experienced with this process. You can find his contact information on the right hand side of this page.
Michael has joined us from his native South Africa, where he is a qualified Attorney of the High Court. Michael is an integral part of the Disputes Resolution Department, and specialises in Corporate and Commercial Litigation.