Set Aside Statutory Demand | Challenging a Statutory Demand

What is a statutory demand?

A Statutory Demand is a formal demand for payment of a debt, and it is governed by the Insolvency Act 1986. It is a legal procedure that can be used by creditors to prompt payment from an individual or a company that owes them money. The key features of a statutory demand include:

• Formal requirement: The Statutory Demand must be in a prescribed form as set out in the Insolvency Rules. It should include details such as the amount of the debt, the nature of the debt, and information about the creditor and debtor.
• Minimum debt threshold: The debt being claimed in the Statutory Demand must be equal to or exceed a specified minimum amount of £5,000. If the debt is less than this amount, a Statutory Demand may not be appropriate.
• Service: The statutory demand must be properly served on the debtor. This typically involves delivering it to the debtor’s registered office or their usual place of residence. It can also be served by post, but there are specific rules regarding how this should be done.
• Time limit: The debtor has 21 days from the date of service to either pay the debt, reach a settlement with the creditor, or provide a valid reason for disputing the debt. If the applicant is in the UK when they receive the statutory demand, they will have 18 days to apply to have it set aside.
• Consequences of non-compliance: If the debtor fails to comply with the Statutory Demand within the specified time frame, the creditor may use this as evidence that the debtor is unable to pay their debts. This could be grounds for the creditor to petition for the debtor’s bankruptcy (if an individual) or winding up (if a company).

It’s important to note that a Statutory Demand is a serious legal document, and both creditors and debtors should seek legal advice when dealing with such matters to ensure compliance with the relevant laws and procedures.

Serving a statutory demand

Rule 10.4 (Insolvency Rules 2016):

Rule 10.4 deals with the requirements for service of documents. Proper service is crucial in legal proceedings to ensure that all parties involved are notified appropriately. Rule 10.4 outlines the methods and requirements for serving documents, including statutory demands, on the debtor or other relevant parties.

Rule 10.5 (Insolvency Rules 2016):

Rule 10.5 relates to the service of a statutory demand. It provides details about how a statutory demand should be served on an individual or a company, including the timeframe for service. Proper service is essential for the statutory demand to be legally valid and for the subsequent steps in the insolvency process.

How to set aside Statutory Demand

Setting aside a statutory demand is a legal process that allows a debtor to challenge the validity of the demand. If a debtor has received a Statutory Demand and believes it to be incorrect, unfair, or improperly served, they may apply to the court to have it set aside. Here is a general guide on disputing a Statutory Demand to have it set aside:

• Seek legal advice: Before taking any action, it is advisable for the debtor to seek legal advice. A solicitor with expertise in insolvency and debt matters can provide guidance on the specific circumstances and the best course of action.
• Understand Grounds for Setting Aside: There are specific grounds on which a debtor can apply to set aside a statutory demand. Common grounds include:

1. Disputing the debt.
2. The debt is less than the statutory minimum.
3. Defects in the form or content of the demand.
4. The debtor has a counterclaim, set-off, or cross-demand that equals or exceeds the amount of the debt.

• Prepare the application: The debtor or their legal representative will need to prepare an application to set aside the Statutory Demand. The application should outline the grounds on which the demand is being challenged and provide supporting evidence, such as a witness statement.
• File the application: The application to set aside the Statutory Demand should be filed with the appropriate Court. The Court that has jurisdiction over the matter depends on various factors, such as the amount of the debt and the debtor’s location.
• Serve notice on the creditor: The debtor is typically required to serve notice of the application on the creditor. This provides the creditor with an opportunity to respond to the application.
• Court Hearing: The court will schedule a hearing to consider the application. Both the debtor and the creditor may have the opportunity to present their cases. The court will assess the evidence and arguments presented before making a decision.
• Court Decision: If the Court is satisfied that the demand should be dismissed, the will decide to set aside the statutory demand, dismiss the application, or take other appropriate action based on the circumstances of the case.

Forms required to set aside Statutory Demand

The specific forms required to set aside a statutory demand in England and Wales are outlined in the Insolvency Rules.

• Form 6.4 (Rule 6.4(1)): This is the application form used by the debtor to apply to set aside a statutory demand. It sets out the grounds on which the debtor is seeking to have the demand set aside.
• Form 6.5 (Rule 6.4(2)): This form is used to provide supporting evidence and information in support of the application to set aside the statutory demand.
• Form 6.6 (Rule 6.4(3)): If the debtor is also seeking an injunction to restrain the creditor from presenting a bankruptcy petition, this form may be used.

These forms are typically submitted to the court, and the court will then schedule a hearing to consider the application. It’s crucial to follow the correct procedures and provide all necessary information and evidence to support the application.

How can Expert Commercial law assist?

Expert Commercial Law has a panel of solicitors comprising law firms who can help parties to set aside Statutory Demand.

We are not a firm of solicitors; we have a panel of commercial law solicitors. If you contact us in relation to a commercial law case, whether you are looking for formal legal advice or cost-effective assistance on your case, we will pass your case on to a panel firm.

Our panel can also assist with commercial issues such as business energy claims, shareholder disputes and contract disputes.

Set aside statutory demand FAQs

What happens if I ignore a statutory demand?

Ignoring a statutory demand can have serious consequences. If a debtor fails to respond within 21 days (or 18 days if they received the demand in the UK), the creditor may take further legal action, such as filing for bankruptcy against an individual or a winding-up petition against a company. This step can lead to the debtor’s assets being seized and sold to pay off debts. Therefore, it’s crucial to address a statutory demand promptly by either settling the debt, negotiating with the creditor, or applying to have it set aside if there are valid grounds for dispute.

Can I negotiate with the creditor after receiving a statutory demand?

Yes, negotiation is possible and often encouraged after receiving a statutory demand. Debtors can contact the creditor to discuss the possibility of settling the debt, agreeing on a payment plan, or disputing the amount if there’s a legitimate reason. Negotiation can prevent further legal action, such as bankruptcy or winding-up proceedings, and potentially resolve the matter more amicably. Legal advice can help navigate these negotiations effectively.

How does a statutory demand affect a company’s credit rating?

Serving a statutory demand on a company is not in itself a public action and does not directly affect the company’s credit rating.

However, if the demand leads to further legal action, such as a winding-up petition, this can become public and significantly impact the company’s creditworthiness.

Once a winding-up petition is advertised, it may be reported by credit reference agencies, leading to a deterioration in the company’s credit score and its ability to obtain finance.

Is it possible to withdraw a statutory demand?

A statutory demand can be withdrawn by the creditor who issued it, particularly if the debtor has settled the debt, if both parties have come to an agreement, or if the creditor decides not to pursue the debt for any reason. It’s important for the withdrawal to be formally communicated to the debtor to prevent any further actions or misunderstandings. Legal advice can ensure that the withdrawal is executed correctly and that all parties understand their rights and obligations.