Article written by Adina-Leigh Collins, Litigation Solicitor
In this update, we look at statutory demands, what a statutory demand is, how to serve a statutory demand and what to do if a debtor fails to pay.
What is a statutory demand?
A statutory demand is a written demand for payment of a debt. It is served on an individual as a precursor to bankruptcy proceedings, in accordance with section 268(1)(a) Insolvency Act 1986 and must contain the necessary information as prescribed by the Insolvency Rules 2016.
Why do I need to serve a statutory demand?
Per section 267(2) Insolvency Act 1986, in order to present a bankruptcy petition against an individual/debtor, the creditor must show that the debtor:
- either appears unable to pay the debt; or
- has no reasonable prospect of being able to pay.
In accordance with section 268 Insolvency Act, if a statutory demand has been served and the debt has not been paid or the demand set aside within the period of 21 days, then this satisfies section 267(2) IA 1986.
Serving a statutory demand is generally, therefore, a quick and inexpensive way of proving the debtor cannot pay or has no reasonable prospect of paying the debt – assuming it is not paid, or challenged, by the debtor within the 21-day period.
If the creditor is relying on an unsatisfied judgment debt, then it may not be necessary to serve a statutory demand in line with s268(1)(b) Insolvency Act 1986. However, further advice should be sought.
If the debt is not payable immediately and it is a future debt, then further advice should be sought.
I am owed money; can I serve a Statutory Demand?
For a statutory demand to be served on an individual or sole trader, the debt must be:
- A liquidated sum, i.e. it must be for a specific and final amount (for example, an unpaid invoice);
- A genuine, and undisputed debt;
- For a sum of more than £5,000;
- Unsecured, that is to say that the debt is not secured against any of the debtor’s assets.
The statutory demand must comply with the relevant rules and, crucially, give the debtor at least 3 weeks to pay or otherwise come to an agreement to pay the debt. If the debt is disputed or contains significant procedural defects, the debtor has 18 days from the date of service to make an application to set aside the demand.
Rule 10.2 of the Insolvency Rules 2016 state, the onus is on the creditor to “do all that is reasonable to bring the demand to the debtor’s attention and, if practicable in the particular circumstances, serve the demand personally”. Therefore, where possible, the demand should be personally served on the debtor, and we generally advise on instructing a process server to carry this task out.
If I serve a statutory demand but do not wish to then issue bankruptcy proceedings, can I withdraw the demand?
Yes. The service of a statutory demand does not start Court proceedings. It is a precursor to Court proceedings but the creditor who has served a statutory demand is not obliged to proceed with Court proceedings if they no longer wish. You can either simply do nothing, or the debtor may ask for your express agreement that you will not issue a petition.
However, be aware that a debtor may issue an application to challenge the demand, and if there are grounds to proceed then the Court will list a hearing.
So, I’ve served a statutory demand and the debtor hasn’t paid or contacted me further, what do I do?
You are permitted to present a bankruptcy petition after 21 days of serving the statutory demand on the debtor. One of our specialist insolvency solicitors would be happy to provide further advice and assistance regarding this next stage, or read more here.
If you are owed a debt of £5,000 or more and would like assistance from our specialist insolvency solicitors to draft and serve a statutory demand on the debtor, please do not hesitate to contact me directly via email, or contact the insolvency team on 020 8308 3610.