Receiving a statutory demand can be an alarming situation for individuals and businesses. This formal demand requires you to pay the owed amount within 21 days. Failure to respond appropriately may lead to serious consequences, including bankruptcy or the creditor filing for liquidation.
This comprehensive guide covers all key aspects related to statutory demands –
- What is a statutory demand and when is it issued
- Details to expect in a statutory demand
- How to fill in a statutory demand form
- Implications of ignoring the demand
- Your available options and how to choose
- Can You Serve A Statutory Demand By Email?
- Setting aside a disputed demand
- Recent changes to statutory demand provisions
Equipped with this information, you will be able to make informed decisions if you ever get a demand letter from a creditor.
What Exactly is a Statutory Demand?
This demand is a formal notice sent by a creditor when an individual or business owes them money. It requires the debtor to pay the owed amount within 21 days of receiving the letter.
This process is governed by the Insolvency Act 1986. Most commonly, banks, financial institutions, lenders, suppliers, etc. can issue a demand if debts are unpaid for goods or services provided.
Common situations when you may get a statutory demand letter include:
- Non-payment of loans or credit card dues
- Overdue payments for supplies made on credit
- Unpaid invoices for services rendered
Key Details to Expect in a Statutory Demand
A statutory demand would include:
- The amount owed and description of the debt
- Details of the creditor – name, address, etc.
- The explicit requirement to pay within 21 days from receipt of the letter
- Clear warning of consequences if payment is not made
- Place and mode of payment
Why is it Important to Respond Within 21 Days?
The statutory demand sets a 21-day deadline for you to respond and resolve the situation before the creditor can initiate bankruptcy or liquidation proceedings.
Consequences of failing to act within 21 days
If payment is not made within 21 days of the demand, the creditor may:
- File a winding-up petition to liquidate your company assets to recover payment
- Initiate bankruptcy proceedings by applying to the court
- Seek permission for assets to be seized or premises entered
This 21-day period is thus critical. The demand letter is essentially an “alarm bell” for you to either pay the owed amount or settle the dispute with the creditor.
What are Your Options Upon Receiving the Demand?
When served with a statutory demand, you have three main options –
1. Pay the Demanded Amount
The simplest option is to pay the full demanded amount within the 21-day deadline. This settles the debt and avoids any further action from the creditor.
2. Negotiate Terms with Creditor
If unable to pay the full amount immediately, get in touch with the creditor explaining your position. Request for an alternate payment plan – installment payments, staggered timeline, etc.
If agreed mutually, make sure revised terms are formally documented. This legally binds the creditor from initiating any winding-up petition as long as you comply with the new terms.
3. Dispute the Statutory Demand
In case you disagree with the demand and believe the amount is not owed legitimately, the next step is to apply to set aside the demand.
How Does One Apply to Set Aside a Statutory Demand?
If there is a valid dispute regarding the debt, you must act promptly to set aside the demand within 18 days of receiving it. Here is the overview of the process:
Step 1 – Make an Application to the Court
Prepare a written application to set aside the statutory demand as per requirements in Rule 6.19 of the Insolvency Rules. In the application, explicitly request the court to set aside the demand along with reasons/evidence to support your grounds.
Step 2 – Prepare a Witness Statement
Along with the application, you must also include an affidavit evidencing the facts stated in the application. For instance, any proof that debt has been paid or is under dispute should be presented here. The witness statement must be notarized.
Step 3 – Serve the Application
The application should be served upon the creditor seeking the statutory demand. A court fee has to be paid based on current rates for making the application.
How to Fill in a Statutory Demand Form:
- Creditor Details Fill in the full legal name and address of the creditor serving the statutory demand. If it is a company, provide the registered office address.
- Debtor Details Provide the full legal name and address of the individual or business that owes the debt. Ensure accuracy to avoid technical objections later.
- Debt Details State the exact amount owed as of date in pound sterling. Also provide details of the nature of debt – invoice numbers, contract references, and description of goods/services for which payment is due.
- Demand and Warning Use standard legal text to formally demand payment within 21 days from the date of the demand. Include a warning that failure to pay may lead to a winding-up petition.
- Method and Place of Payment Specify acceptable payment methods e.g. bank transfer, cheque, etc. along with payment details like bank account number, cheque receiving address, etc.
- Supporting Documents Attach any supporting paperwork like overdue invoices, statements, contracts, etc. evidencing details of the debt.
- Date and Signature Date and sign the statutory demand form. If it is being issued by a company, the signature of a company director along with the company seal is required.
Go through insolvency service templates before filling out the form yourself. Seeking legal advice can also help ensure accuracy and compliance with technicalities. Maintain copies of demand and delivery proof.
Does a Statutory Demand Affect Your Credit Rating?
A statutory is a legal notice issued by creditors to recover unpaid debts exceeding £750. It sets a deadline of 21 days for you to repay or make arrangements to pay the amount owed. Failure to act could result in bankruptcy or insolvency proceedings against you.
This formal demand is often the last step before severe legal processes get triggered. Naturally, the question arises – does receiving a statutory demand also dent your credit report?
Impact on Credit Rating
Statutory demands themselves do not directly impact your credit rating or score. They are not formally reported to credit rating agencies like Experian, Equifax, etc.
However, the unpaid debt that led to the demand or your subsequent bankruptcy filing will damage your creditworthiness significantly.
How Overdue Debts Hurt Credit Reports
When you miss debt repayments, creditors eventually list your account as default, in collections, or write it off – indicating you failed to pay.
These negative indicators get reported to credit bureaus and remain on your report typically for 6 years, severely worsening your credit rating. Default listings also make it very difficult to access new credit.
Eventually, if you undergo bankruptcy due to continuing non-payment, it also gets added to your credit file for a prolonged period.
How to Minimize Damage
Acting promptly on receiving a statutory demand and making payment arrangements is key to controlling the adverse impact on your credit rating. This will prevent you from falling into defaults or needing bankruptcy filing.
Settling debts, maintaining responsible payment behavior going forward, and keeping finances disciplined will help rebuild credit over time. Seeking credit counseling assistance may also aid financial rehabilitation.
On What Grounds Can a Statutory Demand be Set Aside?
The law sets out specific reasons based on which a statutory demand may be legally set aside:
- The debt claimed has been already paid – If you have evidence of having paid the amounts claimed in demand already
- Dispute on the existence of debt – If you genuinely dispute the liability of debt itself
- Security held covers debt – If creditor holds any security worth equal to or more than the debt
- Counterclaim exceeds debt – If you have a valid counterclaim that exceeds the petitioner’s claim
- Unfair conduct by creditor – If the creditor’s conduct has been unfair making it unjust to wind up the company
The court examines the grounds and evidence provided in your application to then decide whether the statutory demand stands valid or should be set aside.
Can You Serve A Statutory Demand By Email?
A statutory is a formal notice sent by a creditor to an individual or company demanding repayment of a debt exceeding £750 within 21 days. Failure to pay the amount owed or reach an agreement with the creditor could result in bankruptcy or liquidation proceedings.
The statutory demand must be delivered in a legally compliant manner. This raises the question – can statutorily be served by email or do they need to be sent by post only?
Rules for Service of Statutory Demand
As per the Insolvency Act 1986 and Insolvency Rules 2016, a statutory must be served:
- In-person, by delivering it to the individual directly or leaving it at their residential address.
- By post, sending the demand by recorded delivery to the person’s usual or last known address.
- In the case of a company – leaving it at, or sending it by post to, the registered office of the company.
Email Not Considered Legal Service
Unfortunately, service by email is currently not covered under the rules for service. Some reasons why email is not deemed a legally valid mode of delivery for statutory demands:
- Difficult to prove actual receipt – Emails may go into spam or be missed.
- Lack of registered email ID protocols – Unlike postal addresses, there are no set verified email IDs/databases.
- Security issues – Email systems can be compromised exposing confidential information.
While convenient, email lacks the legal reliability associated with a registered post or in-person delivery, both of which can be easily evidenced.
Unless rules are amended in the future, creditors need to serve statutory only via post or in person if they want to initiate any winding-up petitions for non-payment. Email service will likely be considered inadequate legal notice by courts. Deferring action based on an email demand can prove risky.
Changes Introduced to Statutory Demand Provisions
Recent amendments to insolvency rules have positively changed certain aspects related to statutory:
Increase in Statutory Demand Threshold
The minimum debt threshold to be able to issue a statutory demand has been increased from £750 to £10,000. This applies to both companies and individuals.
This protects smaller businesses and individuals from unfair statutory demands for smaller debts. Creditors also need to justify the costs involved given the higher threshold.
Enhanced Details Required
More comprehensive details of the debtor now need to be mandatorily provided in the statutory form.
Additional fields include the date/place of birth of the individual, identification numbers of a body corporate, service address, etc.
This enables easier tracking and minimizes potential abuse.
Restrictions on Re-issued Statutory Demands
If a statutory demand was served earlier but lapsed, additional restrictions have now been enforced on the ability to re-issue a fresh demand.
Safeguards require the creditor to establish proper grounds for making another demand with the same details.
Conclusion
A statutory demand is a critical indicator requiring urgent attention if you have outstanding debts. Given the stringent 21-day deadline, it is vital to be aware of available options to resolve the situation.
Seeking legal counsel and acting promptly to pay dues, negotiate terms or set aside disputed demands is key to avoid severe consequences of winding up orders or bankruptcy proceedings initiated by creditors.
Also Read: COMMON LAW UNDERSTANDING WHAT YOU NEED TO KNOW FOR YOUR RELATIONSHIP
FAQs on statutory demands:
Q: What is a statutory demand?
A statutory demand is a formal notice sent by a creditor demanding repayment of an outstanding debt exceeding £750 within 21 days. Failure to pay or reach an agreement within this notice period allows the creditor to initiate bankruptcy or winding up proceedings.
Q: What details must the statutory demand contain?
The demand should mention the amount owed, a description of the debt, the creditor’s details, the explicit requirement to make payment within 21 days, and a warning of legal consequences for non-payment.
Q: How is a statutory demand served?
The statutory demand must be delivered in person, by post, or by leaving it at the registered address in case of companies. Email service is not considered legally valid.
Q: What are the options to respond to the demand?
The options are: Pay the full demanded amount within 21 days; Request the creditor for an alternate payment plan with revised terms; Dispute the demand if you believe the amount is not owed by applying to set it aside.
Q: Can a statutory demand be set aside? On what grounds?
Yes, a statutory demand can be legally set aside if: The debt has already been paid; The debt is under genuine dispute; the Creditor already holds security worth more than the debt amount; a Valid counterclaim exists exceeding the total amount owed.
Q: What happens if the statutory demand is ignored?
If no payment is made within the deadline, the creditor can proceed to file for liquidation or bankruptcy to initiate the seizing of assets to recover owed debt. This severely impacts an individual’s or company’s financial position.
Q: Does a statutory demand affect credit rating?
While the demand itself does not impact your credit score, the associated unpaid debts get reported by creditors damaging your credit rating. This can cause financing difficulties later on.
