What is a Statutory Demand?

When a customer fails to pay their invoices on time, it can be frustrating and financially challenging for any business. One effective legal tool to recover unpaid debts is a statutory demand. Whether you’re dealing with an individual, sole trader, or limited company, a statutory demand is a formal way to request payment and can lead to serious consequences, such as bankruptcy or company liquidation, if ignored. In this blog, we’ll explain what a statutory demand is, when it can be used, and how to navigate the process, helping you make informed decisions about pursuing unpaid debts.

What is a Statutory Demand?

A statutory demand is a formal request for payment that can be served on an individual or company if they owe you money and have failed to pay your invoices when they were due. You can serve a statutory demand on any individual (including sole traders and non-limited companies) and limited companies as long as the following criteria are met:

Individuals, including sole traders and non-limited companies: The undisputed debt must total £5,000 or more.

Limited companies: The undisputed debt must be over £750.

There’s one loophole here – you shouldn’t serve a statutory demand for a debt that’s over 6 years old, or if the customer has made no payment or admission of liability during that time.

However, if your customer meets the above criteria and they haven’t paid invoices as and when they fall due, you are within your rights to serve a statutory demand to ask for that

How does a Statutory Demand Work?

Any creditor (someone owed money) can serve a statutory demand without needing a solicitor. Once the individual or company (the debtor) receives the demand, they have 21 days to either:

• Pay the debt in full
• Agree on a suitable repayment arrangement

If they fail to respond within 21 days, you can apply to either bankrupt the individual or wind up the company. You have four months to do this after the 21-day period expires.

Can a Statutory Demand be Issued if the Debt is Disputed?

If the debt is being disputed, you should not issue a statutory demand. If you issue a statutory demand and a dispute arises later, or it’s revealed that there was a dispute happening at the time you issued the demand, then a few things can happen. The specifics depend on the type of debtor:

• Limited company: You may agree not to proceed with enforcement, such as moving to bankruptcy or a winding-up petition.
• Individual or non-limited company: The debtor can request a court hearing, where a judge will decide if the dispute is valid (this is known as an application to set aside the demand). If this occurs, it’s often advisable to try to withdraw the demand without costs on either side, although a court hearing might still follow.

Regardless of the outcome, even if the statutory demand is withdrawn, you can still pursue the debt through County Court proceedings at a later date, if you wish to.

How is A Statutory Demand Issued?

The good news is, you can create and serve a statutory demand yourself, using the UK Government website. There is a guide there to take you through it step by step, from how to create it, what records to keep and what to do if your demand is ignored. If you need support in doing this, or just want to ask some questions, you can always talk to a professional debt collection agency or solicitor.

At Debtcol, we specialise in chasing debtors for overdue invoices. Our team work with you to not only effectively recover debts owed to you, but to put policies and processes in place to ensure late payments are a thing of the past. If you’d like to know more just get in touch with us today.