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Statutory Demands

Statutory Demands

Serving a statutory demand is often a favoured option for a creditor frustrated with delays in the court system, anticipated tactics by a debtor or where the debt is important and high value. Preparing a statutory demand is cost-effective but potentially risky and careful thought and advice is important.

The main advantage of using a statutory demand is speed, impact and cost. In relation to speed, some creditors will use a demand before starting court proceedings. If the debtor pays, the result is very effective (although see below).

In terms of cost, we can prepare a demand for you very cost effectively, often for less than £500.00 plus VAT.

A process server is recommended for personal service, but this cost is also modest when weighed against court fees and costs of preparing formal proceedings. Impact, or desired result, is something that should be considered carefully. Knowledge of the debtor’s financial circumstances and likely response should be considered.

In short, whilst some creditor clients are very keen on using statutory demands extensively, we do not recommend that they are used as a matter of course. It also must be remembered that a demand can only be used if the debt is greater than £750.00

What can go wrong with using a s statutory demand?

A statutory demand is not intended to be a tool to circumvent the usual process, where a debtor does not pay, of issuing a claim in the County Court or High Court and obtaining judgment. The intended use of a statutory demand is as prelude to winding up or bankruptcy, as a final warning to a debtor where a debt is higher than £750.00 and the debtor is believed to be insolvent.

Consequently, it is often not difficult for a debtor to challenge a statutory demand, arguing that the debt is contested. The debtor will, in those circumstances, generally threaten to apply to court to set the demand aside. In this situation, you as creditor face a difficult choice. Agree to set aside the demand and the debtor may feel emboldened and you are back at square one. If you refuse to set aside the demand and the debtor succeeds in applying to set it aside you will likely get a costs order against you and the debtor may be even more emboldened.

If the demand does not prompt payment, then a petition, whilst more expensive, is likely to get a better result with its imminent threat of bankruptcy or winding up.

Perhaps most importantly, you are trying to persuade the debtor to pay. Ultimately, you do not want a bankruptcy or a winding-up order made against the debtor. If such an order is made, then the debtor’s assets will be sold and the proceeds on sale used to pay off the debtor’s debts and the costs of obtaining the bankruptcy order or winding up order.

The debts and costs are paid in an order of priority set out by Insolvency legislation. You may therefore find yourself in a position where you have incurred significant expense to obtain the bankruptcy order or winding up order merely to become one of the many creditors of the debtor, waiting to see what can be realised from the debtor’s assets. Usually, little, if anything, is recovered in such circumstances.

Contact our corporate and commercial law experts today

To talk to one of our corporate or commercial solicitors please call us today on 03456 381381 or email  corporate@ibblaw.co.uk.

Adam Dowdney

Adam Dowdney

Partner adam.dowdney@ibblaw.co.uk 01895 207264