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What About Using A Statutory Demand?

A statutory demand is a formal demand for money due and it can be made against a private individual, partners in a business or a limited company. It is supposed to be the first step in taking insolvency proceedings, bankruptcy for individuals and winding up for a limited company. However, it is often used as a method of debt collecting were the person pursuing the statutory demand has no intention whatsoever of commencing insolvency proceedings.

A statutory demand is not generated by the court but is prepared by us on your behalf in accordance with the form of wording and procedure fixed by the Insolvency Act and Rules and if it is not adhered to then the demand is likely to be defective and cannot be relied upon.

In order to pursue insolvency proceedings the amount that you are claiming from the debtor must be a minimum of £5,000 against an individual but only £750 in respect of a company. Until quite recently the limit was £750 for private individuals as well but that was increased. At the moment there appear to be no plans to increase that figure in respect of companies.

The statutory demand requires the debtor to pay the amount shown due on the demand within 21 days. In the case of an individual, it is possible for them to make an application to the court to set aside this statutory demand but there is no such provision in respect of a company. If a company feels that the demand is not properly made then it should object in writing to the service of the demand and if it is concerned that winding up proceedings may be issued then the company should apply to the court for an injunction to prevent a winding up petition being issued.

If an individual wants to contest a statutory demand they have only 18 days from the day upon which they were served to make an application to the court to set aside the statutory demand. After that it may simply be too late, although in practice if the application is made before a bankruptcy petition has been issued then there is a good chance that the court will hear the application even if it is submitted late.

So why would you use a statutory demand instead of simply issuing proceedings in court ?

The advice that we have always given clients is that a statutory demand should not be used to chase debts which were disputed but only for debts which were clearly due but where the debtor needed to be put under some pressure to make payment. One of the drawbacks of issuing a statutory demand has been the inability to recover legal costs. If proceedings are issued then we can recover the amount of the court fee and some fixed costs together with interest which helps to cover the cost of issuing proceedings. Originally statutory demands did not provide for the recovery of interest unless it was provided for in the contract between the parties, but very rarely was it possible to recover any legal costs. This position changed when the Late Payment of Commercial Debts (Interest) Act was introduced  allowing for interest to be claimed without issuing proceedings and whether there was a contractual right to interest or not. It also introduced the ability to claim some costs of by way of compensation for the late payment but the sums  were small and did not cover the costs of serving a statutory demand. This is particularly so because the best method of serving a statutory demand is to ensure that it is served personally upon the debtor.

Over the last couple of years court fees have increased considerably for money claims over £10,000 the court fee is based on a percentage of the claim, currently 5%. This would mean that a debt for £20,000 would result in a payment of a court fee of £1,000. Obviously if the debt is in dispute then the issue of proceedings is the best way to proceed, irrespective of the amount of the court fees, and of course if the claim is successful these can be added to the judgment.

However, the position concerning the recovery of compensation costs  has improved, from a Creditor’s perspective, so that it is possible to claim additional costs over and above the original allowances if these would be insufficient to cover the cost of pursuing the debt.

This means that there is greater potential for recovery of the true costs of pursuing a debt by way of a statutory demand, for those situations when a debtor is slow to pay and needs some encouragement to ensure that yours is the next debt that he pays. It is worth knowing that this is available and provides an alternative to the issue of Court proceedings.

If you wish to know more about this, then please contact Fiona Gaskell at fiona.gaskell@clough-willis.co.uk or 0800 083 0815.