The statutory demand procedure and professional tips on how to make it work for you

Published: 28th April 2010
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If you issue a statutory demand, you can follow it up 21 days later with a bankruptcy (individual) or winding up (company) petition. There is nothing, but nothing that concentrates someone's mind more than prospective wipe out. Of course, if you have done your homework, you never need to issue the petition.

The reason why a statutory demand is so powerful is that the mere issue of a petition, no matter how easily dismissed triggers a domino effect on borrowing and many other agreements. The usual words in any legal agreement, which entitles a party to avoid the agreement often, refer to the issue of a petition rather than an order for winding up. So your enthusiastic debt collection really could wipe out the largest of companies.

It used to be difficult for a third party to know about your petition. The Internet has changed all that. If you publish a copy of a petition in the right place, and tell a few banks for good measure, you are spelling disaster for someone.

The law assumes that a statutory demand merely paves the way for a petition. But it can be an incredibly powerful debt-collecting device without you even setting eyes on a petition. What is more, the procedure is very easy to follow. All you need are a couple of forms and a first class stamp; no solicitors, no court fees.

Why do creditors not use it more often?
The procedure is steeped in history. Even the name is enough to put off a layman. People assume they need a solicitor.

The requirements for a statutory demand are set out in the Insolvency Act and they have to be followed carefully, however, they are not complicated;

There is a fee on a petition of £150 and you may not issue for a debt of less than £750, so don't issue a statutory demand for a small sum. Although you hope you will never need to issue a petition, if you chase a small sum, the statutory demand is toothless, for your debtor knows you cannot take the procedure further. Furthermore, he may calculate that you are unlikely to throw good money after bad if the debt is not a million miles from the £900 cost;

Your debtor has to have the money;

You cannot threaten to wipe out then expect your customer to come back tomorrow to buy more of your goods or services. Of course, the same applies to a court claim;

If you get it wrong, it may be you who are wiped out!

When do you use a statutory demand?
Use it when:

You are chasing more than, say, £5,000;

You are absolutely certain that they owe you the money - every penny of it and the debt is crystallised. That means you do not need to ask a judge to calculate how much money is due to you;

Your debtor has the money;

You calculate that your debtor will pay rather than risk your issuing a petition. This depends of course on his perception of you;

You are prepared to follow up by issuing a petition. You hope that might never be necessary. But, as in any litigation, hesitation comes through in your tactics. You lose the impact completely if you are seen to be bluffing.

Provided you are certain that the debt is contractually due and your debtor has the money, go for it. A statutory demand works best with people who do have money and reputation but are simply too arrogant or autocratic or bureaucratic to pay you. Use it against major plcs or someone with a reputation to protect, where they simply cannot afford even to consider whether you are serious. You will be happily surprised how quickly a cheque arrives on your doormat. Formal requirements of the Insolvency Act 1986 on completion of the demand form and proof of service on the debtor

Individual debtor:

1. A statutory demand under section 268 must be dated, and be signed either by the creditor himself or by a person stating himself to be authorised to make the demand on the creditor's behalf;
2. The statutory demand must specify whether it is made under section 268(1) (debt payable immediately) or section 268(2) (debt not so payable);
3. The demand must state the amount of the debt, and the consideration for it (or, if there is no consideration, the way in which it arises) and;
4. If made under section 268(1) and founded on a judgment or order of a court, it must give details of the judgment or order, and;
5. If made under section 268(2), it must state the grounds on which it is alleged that the debtor;
6. Appears to have no reasonable prospect of paying the debt.

Note: Net Lawman does not advise on the rare cases founded on a judgement or order of court and debts not payable immediately.
1. If the amount claimed in the demand includes
2. Any charge by way of interest not previously notified to the debtor as a liability of his, or;
3. Any other charge accruing from time to time.

The amount or rate of the charge must be separately identified, and the grounds on which payment of it is claimed must be stated. In either case the amount claimed must be limited to that which has accrued due at the date of the demand. If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but:
1. There shall in the demand be specified the nature of the security, and the value which the creditor;
2. Puts upon it as at the date of the demand, and;
3. The amount of which payment is claimed by the demand shall be the full amount of the debt, less;
4. The amount specified as the value of the security.

Corporate debtor
The statutory demand must state the amount of the debt and the consideration for it (or, if there is no consideration, the way in which it arises).
If the amount claimed in the demand includes:

1. Any charge by way of interest not previously notified to the company as included in its liability, or;
2. Any other charge accruing from time to time,

The amount or rate of the charge must be separately identified, and the ground on which payment of it is claimed must be stated. In either case the amount claimed must be limited to that which has accrued due at the date of the demand.

Proof of service of statutory demand

Where under section 268 the petition must have been preceded by a statutory demand, there must be filed in court, with the petition, an affidavit [or affidavits] proving service of the demand.

The affidavit must have exhibited (attached) to it a copy of the demand as served
Subject to the next paragraph, if the demand has been served personally on the debtor, the affidavit must be made by the person who effected that service. If service of the demand (however effected) has been acknowledged in writing either by the debtor himself, or by some person stating himself in the acknowledgement to be authorised to accept service on the debtor's behalf, the affidavit must be made either by the creditor or by a person acting on his behalf, and the acknowledgement of service must be exhibited to the affidavit. If neither paragraph (3) nor paragraph (4) applies, the affidavit [or affidavits] must be made by a person [or persons] having direct personal knowledge of the means adopted for serving the statutory demand, and must:

1. Give particulars of the steps which have been taken with a view to serving the demand (personally), and;
2. State the means whereby (those steps having been ineffective) it was sought to bring the demand to the debtor's attention, and;
3. Specify a date by which, to the best of the knowledge, information and belief of the person making;
4. The affidavit, the demand will have come to the debtor's attention;
5. The steps of which particulars are given for the above purposes must be such as would have sufficed to justify an order for substituted service of a petition.
6. If the affidavit specifies a date for the purposes of compliance with sub paragraph (c), above, then unless the court otherwise orders, that date is deemed for the purposes of the Rules to have been the date on which the statutory demand was served on the debtor.
7. Where the creditor has taken advantage of Rule 6.3(3)(newspaper advertisement), the affidavit must be made either by the creditor himself or by a person having direct personal knowledge of the circumstances; and there must be specified in the affidavit:
8. The means of the creditor's knowledge or (as the case may be) belief required for the purposes of that Rule, and;
9. The date or dates on which, and the newspaper in which, the statutory demand was advertised;
10. Under that Rule.

And there shall be exhibited to the affidavit a copy of any advertisement of the statutory demand. The court may decline to file the petition if not satisfied that the creditor has discharged the obligation imposed on him by Rule 6.3(2).

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