For a company or individual that is owed more than £750 a statutory demand can be a useful tool to put pressure on the debtor.
A statutory demand has to be made on the correct form and then served on the debtor. If the creditor wishes to rely on the statutory demand in a subsequent bankruptcy or winding up petition then the creditor will require proof that the statutory demand was served on the debtor.
Once served with a statutory demand the debtor has 18 days to either (a) settle the debt, or (b) reach an agreement with the creditor or (c) in the case of individuals apply to the court to dismiss the statutory demand (the rules are different for companies).
If the debtor still has not paid by 21 days then the creditor can apply to the court for a petition to wind up (in the case of a company) or make bankrupt (in the case of individual).
When is not appropriate to serve a statutory demand?
I acted for a homeowner recently in connection with a building dispute. The facts briefly are that my client had engaged a builder to carry out building works on his property. The builder then subcontracted some of the work to another building company. As you would expect my client paid the contract price to the main building contractor. Unfortunately, the main building contractor did not pay his subcontractor who was left out of pocket. Thinking that my client was a better prospect of getting paid that the main contractor the subcontractor demanded payment from my client. As you would expect, we pointed out to the subcontractor that he had no contractual relationship with my client and that his claim was against the main building contractor. Not satisfied with this the subcontractor served a statutory demand on my client. That proved very costly for the subcontractor as we applied to the court to have the statutory demand dismissed and the subcontractor ended up paying my client’s costs. The moral of the story there is that it is not appropriate to serve a statutory demand in circumstances where the debt is disputed.
Disclaimer: this blog only gives a brief overview of the law and is not intended as a substitute for legal advice.