Statutory Demands – The Benefits & Disadvantages

October 14, 2016

Statutory Demands are a popular process by which a creditor threatens a debtor with Bankruptcy, or Winding Up.

Statutory Demands are on a prescribed form and once served give the debtor 21 days within which to pay the sum claimed.

The alternative to serving a Statutory Demand would be to serve a letter of claim with the threat of issuing Court proceedings and obtaining Judgment. It is therefore safe to say that a Statutory Demand carries more weight than a demand letter, however, there are advantages and disadvantages of choosing either the insolvency route or the debt route, and it may be that information from the client as to the debtor’s ability to pay may be important in advising the client as to which route is the most beneficial.

  1. When to avoid insolvency proceedings:

It is advisable not to serve a Statutory Demand if any of the following apply:-

a) The debt is £750.00 or less;

b) The debtor has raised a dispute to the action (the threshold for a successful set aside application is relatively low);

c) The claim is unliquidated;

2. Advantages of insolvency and serving a Statutory Demand:

a) the threat of Bankruptcy is more draconian than a standard demand letter;

b) If the debtor pays following service of the Statutory Demand then the costs incurred by the client are minimal;

c) The creditor does not have to file a Petition if the Statutory Demand does not produce payment but can change over to the normal debt route and obtain Judgment;

3. Disadvantages of insolvency and serving a Statutory Demand:

a) If the Statutory Demand is challenged and a set aside application is filed and is successful, then there can be significant costs against the creditor;

b) The debtor may present a Petition himself to make himself Bankrupt following service of the Statutory Demand;

c) The costs of a full Bankruptcy action are expensive and may not be recovered by the creditor;

d) If a Bankruptcy Order is made, then the creditor becomes an unsecured creditor, apart from costs and there may be little funds available for payment of a dividend;

e) The debtor will be restricted in terms of time once a Petition is filed to pay the debt over a period of time as the debt will have to be paid in full by the hearing date, or a Bankruptcy Order may have to be made;

It is sometimes difficult to advise a client as to which route is going to produce the best outcome as each case will depend on its own factors. As a general rule, any hint of a dispute should result in a Statutory Demand not being used. In other cases where a debtor has several creditors and is paying them off in the order in which they are being pursued, then a Statutory Demand and the threat of insolvency is likely to produce a quicker payment than a creditor who is pursuing the debtor by way of Judgment and the Enforcement of Judgements Office.

Please note:

The content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.

Please contact Cleaver Fulton Rankin on 028 9024 3141, or alternatively visit www.cfrlaw.co.uk