A statutory demand is a written demand for payment of a debt and notice that, should the debt not be paid, the creditor intends to present a petition to wind up the debtor company. A statutory demand can be served in relation to any debts over £750, and usually provide a period of 3 weeks for payment of the debt.
If no steps are taken when a statutory demand is received, the creditor is entitled to take steps to try to wind up the company in question on the basis that the company is insolvent i.e. unable to pay debts as they become due.
If a petition is presented, the company’s activities will be severely impacted – its bank accounts will likely be frozen and all transactions made after the date of the petition are at risk of being invalid and unwound be the Court. Notice of the petition is published in the London Gazette and the process is noted with Companies House, meaning it is public.
The consequences of a petition to wind up are serious and so if a statutory demand is received, it is vital that it is dealt with expeditiously. Options to respond include:
Statutory demands cannot be issued where the debt is disputed between the parties. Therefore, if the Company alleges that the sum is not in fact due to the creditor, this process should not be used. This, however, can sometimes still be used by alleged creditors despite this provision and therefore it is important to correspond with the creditor if you do dispute the debt. Ignoring the statutory demand because you believe the debt is not due, will likely result in a petition being presented in any event.
An approach should be made to the creditor to outline that the debt is disputed, why the debt is disputed, and request that they provide an undertaking (promise) that they will not present a petition for the winding up of the company in light of this. Due to the time frames allowing a petition to be presented, this should be done as soon as possible after becoming aware of the statutory demand. If the creditor refuses to provide an undertaking to this effect, an application to the Court must be made for an injunction preventing them from doing so. The Court will generally grant an injunction where:
An injunction will prevent the creditor from presenting a petition to wind up the company, allowing the company time to resolve the matter.
An injunction, however, is a discretionary remedy and so it important that the application sets out all the necessary facts and reasons for the order sought.
If you have any questions regarding statutory demands, or have received one and dispute the alleged debt, please contact our Commercial Disputes Team for assistance.
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