At Three Graces Legal, we understand the serious difficulties recovering a commercial debt can have for many businesses, which is why we work hard to ensure that our business clients can recover the money they are owed in a timely manner, keeping expenses low and cash flow issues to a minimum. In the right circumstances, issuing a statutory demand can be a very effective way of doing this, but it is very important that businesses understand the legal implications of this method of debt recovery before deciding to take this route.
What is a statutory demand?
A statutory demand or 'stat' demand as it is commonly known, is a written demand which gives your debtor 21 days to pay the money they owe you. If they fail to do so, this failure can potentially be used as evidence of insolvency, and you can apply to Court to have your debtor wound up (for a company) or made bankrupt (for an individual).
When can a statutory demand be issued?
Any creditor can issue a statutory demand to any debtor who has not paid their debts on time. The only limitation is that a statutory demand cannot generally be issued if the debt in question is more than six years old.
A statutory demand cannot be issued if there is a genuine dispute over the debt being owed.
There is no Court fee to pay to issue a statutory demand, which can make it a cost-effective method of increasing pressure on the debtor.
When can failure to comply with a statutory demand be used as evidence of bankruptcy?
Whether failure to pay within 21 days of a statutory demand can be used as grounds to apply for a company to be wound up or an individual to be made bankrupt depends on the value of the debt you are owed by your debtor.
For businesses, the value of the debt needs to be over £750, while individuals need to owe £10,000 or more before you can use their failure to pay as evidence that they should be made bankrupt. It is important to note that these thresholds refer to the total value of the debt owed. This means that if a business were, for example, to owe you three separate debts of £300 each, their failure to pay would still be a valid ground to apply for the business to be wound up, even though no individual debt exceeds £750 because the total debt owed does exceed the threshold.
When deciding whether to issue a statutory demand, or apply for a business or individual to be declared insolvent due to a failure to meet a statutory demand, it is important to consider what the consequences will be if you are successful and your debtor is wound up or made bankrupt.
In such cases, secured creditors such as mortgage providers will be paid first, followed by preferential creditors such as employees, then HMRC if any taxes are owed. The insolvency practitioner overseeing the process will also need to be paid. Only after all of these debts have been satisfied in full will unsecured creditors such as suppliers be paid. This means that it is very important when applying for a winding up order or a declaration of bankruptcy to consider your business's place in the 'pecking order' if you are successful. If there are many higher priority creditors, the debt your business is owed may never be paid at all. This is why it is vital to seek advice before taking such a step.
Contact our Commercial Debt Recovery Solicitors
If you are considering issuing a statutory demand, or are looking to defend a statuory demand, our team of commercial debt recovery lawyers can help you to decide if this is the right option for your business. Call us today on 0151 659 1070 or complete our online enquiry form and we will get back to you without delay.