What’s a statutory demand and what are the implications of receiving one? In simple terms a statutory demand is a written demand for payment and a key step in the debt recovery process. It’s very important not to ignore such a demand as it can be followed in short order by a winding-up petition to put your business into liquidation.
Of course, such demands will be issued only when negotiations over payment have broken down or less formal requests have been ignored so you will be aware of the issue prior to receiving one. But if you receive a demand, you need to act quickly – you have just 21 days to pay the amount due or arrange a payment plan and only 18 in which you can challenge it.
What are the criteria to issue a statutory demand?
The Insolvency Act 1986 clearly sets out the circumstances in which a creditor may issue a statutory demand. First and foremost, the amount owed must be at least £750 and the sum cannot be disputed. Secondly, the creditor cannot have security over assets that cover or exceed the debt and cannot owe you any money in return. It’s also important that the money in question is not part of a payment plan that has already been agreed. Finally, the creditor must be able to prove that the demand was served correctly, using the right forms. If any of the above requirements are breached, you can apply to have the statutory demand set aside.
What should you do when receiving a statutory demand?
First and foremost, you should take action quickly, respecting the deadlines mentioned above. The sooner you act, the more chance you have of negotiating a satisfactory outcome, and it will pay dividends to get appropriate professional advice as fast as you can. However, before you do anything you should ensure that the amount demanded is correct and not in dispute and that the demand has been served properly. Assuming everything is in order and you cannot pay the full amount immediately, you should initiate discussions to implement a realistic payment plan.
What happens if you ignore a statutory demand?
Failing to pay a statutory demand creates a debt in law, giving your creditor the leverage to apply for a winding-up petition. By law, the petition must be advertised in the London Gazette, which will alert your bank and other creditors that your business is in a vulnerable position – possibly creating a stampede to issue other demands. Almost certainly, your bank will freeze your accounts, preventing you from trading, and you will have just seven days to act before the winding-up order is granted by the court – putting you out of business once and for all.
So how do you survive a statutory demand?
If attempts to negotiate a payment plan fail, you could enter into a Company Voluntary Arrangement (CVA). This formal insolvency operation gives you breathing space to restructure your finances and allows you to replace your standard terms of business with a new arrangement: for instance, paying a fixed monthly sum for three years to meet 75% of your outstanding debts.
Cashsolv are experts in all aspects of insolvency, with extensive experience of implementing CVAs, so you should contact us immediately when you receive a statutory demand that you cannot pay. For smaller companies, we can arrange a moratorium, creating a defined period in which to trigger a CVA without risk of proceedings from creditors, so this is a very powerful and effective tool.
Of course, the best thing about a CVA is that it allows you to retain control of your business and avoid liquidation. To discover how Cashsolv can make it happen, please visit our Company Voluntary Arrangement page.
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