Can serving a Statutory Demand be an effective tool in recovering sums owed to you?

If you are owed money by either an individual or a company, the service of a statutory demand can be an effective way of recovering the sums due to you if used appropriately.

What is a Statutory Demand?

A Statutory Demand is a formal and final demand for payment made to a debtor, providing them with a three week period within which the debt is to be paid.

If the debtor fails to pay the debt within this time-frame, they can be deemed as unable to pay their debts and as a result, a creditor may proceed to present a Bankruptcy Petition (if the debtor is an individual) or a Winding-Up Petition (if the debtor is a company). 

When is it appropriate to use a Statutory Demand?

A Statutory Demand should only be served if the following points apply to the sums owed:

• the debt is for a specific and known amount i.e. the sums due must be fully quantified;
• if the debtor is an individual, the sum owed is no less than £5000;
• if the debtor is a company, the sum owed is no less than £750;
• the debt is not disputed on genuine grounds.

What are the advantages of serving a Statutory Demand?

There can be a number of advantages in serving a Statutory Demand, rather than pursuing a County Court Claim including the following:

• there is no Court fee payable upon service of the demand;
• the demand can be prepared relatively swiftly;
• because the implications of not satisfying the demand are severe, the threat of bankruptcy or winding-up proceedings can prompt debtors to pay or offer a payment plan;
• upon expiry of the demand, there is no obligation on a creditor to pursue the matter further should they not wish to do so or consider it disproportionate to do so.

What are the disadvantages of serving a Statutory Demand?

Whilst there are a number of advantages to serving a Statutory Demand, can be disadvantages which ought to be considered prior to service:

• a Statutory Demand cannot be used to demand unliquidated sums, such as sums due in connection with a contract dispute in which the exact extent of losses or damages are yet to be determined;
• a Statutory Demand should not be used if there is a genuine dispute with regards to the debtor’s liability to pay the full amount of the sums demanded;
• if the debtor does dispute the debt and is successful in filing an application to set aside the demand (if the debtor is an individual) or an application for an injunction preventing you from presenting a Winding-Up Petition (if the debtor is a company), the costs consequences can be significant.

Summary

Serving a Statutory Demand can be an effective way of recovering sums legally due to you but only when used appropriately. Using one inappropriately can be deemed as an abuse of process and it is therefore important to seek legal advice before proceeding down this route, to avoid facing severe costs consequences.

If you require legal advice or assistance in pursuing a debtor for sums due to you, or information about our fixed-fee debt recovery services, please do not hesitate to contact a member of our Dispute Resolution team on 01604 828282 / 01908 66966 or email litigation@franklins-sols.co.uk.