Receiving a statutory demand should be considered a serious red-flag for you and your business. It is a clear sign that your company could be headed for serious financial issues that will need to be addressed.
As a business owner it is important that you know how to respond to a statutory demand, understand the seriousness of the situation, what options are open to you, and that you seek professional guidance as soon as possible.
What is a Statutory Demand for Payment?
A statutory demand for payment is a written, formal demand from a creditor for a debt to be repaid. It can act as a warning from your creditors that they intend to begin official court proceedings should any withstanding debts not be paid back, or in the event that a suitable agreement for both parties cannot be agreed.
The issuing of a statutory demand is the first step towards a creditor taking legal action to force a debtor to repay what they are owed.
Understanding how to respond to a statutory demand is key. A statutory demand can, in the right circumstance, be used as grounds for the presentation of a court petition for a winding up/bankruptcy order. This is because, should a debtor fail to comply and pay a statutory demand within the allotted time frame, it can be deemed as clear evidence of their inability to pay back accrued debts.
How Long is a Statutory Demand Valid For?
Typically, a statutory demand is intended to force debtors to pay back what they owe within a set 21 day period. They are, however, valid for up to four months. This allows creditors a short window of time in which to escalate the situation, by pursuing bankruptcy or winding up orders should they wish.
If a creditor wishes to take further action on a statutory demand that is older than four weeks they would need express permission from the court. Considering that in most cases statutory demand application is a final attempt for a creditor to receive payment, it is highly likely that they will push ahead with further action should you not respond within a reasonable amount of time. It is therefore imperative that you seek specialist assistance to help you deal with the situation at hand at the earliest opportunity.
Does a Statutory Demand Affect Credit Rating?
Should a debtor find themselves in the position of being able to comply with, and pay a statutory demand, their credit score will remain unaffected. However, a debtor unable to pay a statutory demand, that is later declared bankrupt by an official receiver, will have their inability to pay the statutory demand recorded.
The possible impact of being unable to repay a statutory demand on your credit file can be significant, and can leave a lasting impact on your life well after the initial demand is settled. Therefore it is important that you seek out expert guidance to ensure that you are protected in both the short and long-term.
How to Deal with a Statutory Demand
There are three common methods used when dealing with a statutory demand. These range from compliance, mounting a challenge, or doing nothing and hoping the problem disappears. Unfortunately, the issue disappearing completely is highly unlikely to happen in a majority of cases, so it is important to tackle the issue head on and get everything sorted as soon as possible.
Here are the three potential methods of dealing with a statutory demand in a bit more detail:
An incredibly dangerous tactic to take when faced with statutory demands. Opting to do nothing is not recommended, and there is a very good chance it could lead to bankruptcy.
It is not guaranteed that a creditor will opt to look for bankruptcy following the issuing of a statutory demand, but it can be seen as a statement of intent in many cases.
Bankruptcy can be devastating to a business, its employees, and everybody associated with it, so it is best to not take any unnecessary risks.
Comply with the Statutory Demand
Complying with the statutory demand entails either paying it off in its entirety, or making a deal with the creditor that allows you to pay the demand back in instalments, gives you further time to raise funds, or you can make an agreement on alternative methods of payment.
Complying with a statutory demand is your best course of action, provided you accept you owe the debt. It can be done in three ways:
- Paying the debt in full
- Agreeing a settlement offer
- Arranging an alternative method of payment
Paying the debt in full should, of course, be the preferred option for all parties. It resolves the dispute in as painless a manner as possible and acts to put a bow around the entire issue. It is not uncommon for creditors to be amenable to a settlement such as a payment schedule that suits all parties. It is often preferred to find an agreement for payment in instalments, or for an extension, than having to escalate the situation further.
Should paying back the full amount not be viable, there are still some options open to you. It is possible to attempt to reach a settlement offer, which traditionally entails a creditor accepting a lesser sum of money up front in one lump sum. Should a creditor agree to such a deal, the remainder of the debt would be written off.
It is also possible to secure the debt against an asset, more commonly property. However, this course of action can be incredibly risky so it is recommended you seek professional advice beforehand.
Apply to Set Aside the Statutory Demand
If you believe there is cause that the statutory demand is invalid, it is possible to apply to the court to have it set aside.
If you are living and operating in England and Wales you will need to fill out two forms in order to prove the invalidity of the initial demand. These will be the application to set aside the statutory demand, and a witness statement that supports your case.
Anybody wishing to apply to have their statutory demands set aside in Scotland, Northern Ireland, or anywhere else should double check the process where they are.
Proper grounds to have a statutory demand set aside are:
- The initial debt is disputed
- The amount due is being counterclaimed
- The demand amount stands at under £750 for a business, or under £5000 for an individual
- The statutory demand was served or prepared improperly
Should you wish to apply to set aside a statutory demand, it is important that you have proper grounds (be it one of the reasons above, or another). Fraudulent applications for any reason could result in the court issuing you with a cost order that will only increase the debt further.
Once an application to have the statutory demand set aside is officially submitted, a hearing will take place to determine the validity of the claim. The creditor will, during the court of the hearing, be granted an opportunity to prove that their demand is valid.
What if I Can’t Pay a Statutory Demand?
If you have exhausted all of the options available to you in order to have the statutory demand set aside, or amended in some way, and you are still unable to pay the debt, it is vital that you seek out expert advice as soon as possible. Options available to you include:
- Creditors Voluntary Liquidation
- Company Voluntary Agreement
The options open to a debtor can become more and more limited by the day during the process, particularly if a winding up petition is issued. Therefore, you should seek advice as soon as you can to give your case the best chance of success, and increase the prospects for your business and its long-term future.
Need Help with Statutory Demands?
Working out how to respond to a statutory demand can be a complicated time in any business. It is important that you keep on top of the situation and tackle it head on, in as efficient and clear a manner as possible.
The TaxDebts team has a wealth of knowledge and expertise with helping businesses and individuals tackle statutory demands, gained from years of experience in the area.
That is what makes us so confident that we are perfectly placed to help. We promise to provide a first-class service and will always act with your best interests at heart.
For further advice on how you can respond to a statutory demand, and to discover more about what TaxDebts can do to help, contact a member of our team today.