How to use a statutory demand
The statutory demand procedure and professional tips on how to make it work for you
If you issue a statutory demand, you can follow it up 21 days later with a bankruptcy petition (individual) or winding up petition (company) . 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 because the statutory demand is enough.
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. Many legal agreements, particularly those related to credit and mortgages, contain a provision which enables the creditor to call in the loan if the debtor has a petition for bankruptcy issued against him. 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 your debtor.
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 1986. You must follow them precisely, but they are not complicated.
- The fees at 1st Jan 2012 are: bankruptcy petition: £700;
- winding up petition: £1,165.
- At 1st August 2011, you may not issue for a debt of less than £750, but this figure is likely to increase substantially in 2012.
- Much of the psychological impact of a statutory demand arises from the threat of bankruptcy or winding up, so do not issue a statutory demand for a sum less than the minimum debt level for a petition.
- You cannot threaten disaster to your debtor if you want his continuing business. Of course, the same applies to a court claim.
When do you use a statutory demand?
Use it when:
- You are chasing more than, say, £5,000;
- you are absolutely certain that the debtor owes you the money;
- the debt is crystalised. That means you do not need to ask a judge to calculate how much money is due to you. If your contract allowed for interest, you can calculate and claim that too;
- You think the debtor has or may have the money (relatives and friends may help him in these extreme circumstances);
- 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.
What if you never want to see a court nor file a petition?
A statutory demand can still be a powerful weapon for all the reasons set out above. But you do have to give the impression that you will follow through. If the debtor fails to pay and you do not follow through with a petition, you can simply do nothing. There is no cost of inaction, except loss of credibility.
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.
Forms and procedure
You may be able to find the appropriate form free on the Internet. But you will save a lot of time and will be at far lower risk of error if you buy the notes and advice from Net Lawman, using either:
- Statutory demand forms and notes: service on a company or LLP;
- Statutory demand forms and notes: service on an individual.
The documents come with clear notes and also a draft statutory declaration of service of the demand (an affidavit if you prefer the name). You will need this to prove service if you need to follow up on your demand.
Note: there are several "rare animals" relating to debts arising in different ways. The advice given here and in the drafting notes does not attempt to cover these. They constitute around 2% of all claims.
Formal requirements of the Insolvency Act 1986 on proof of service on the debtor
From this point, this article deals with the requirements for service of the demand on the debtor. These requirements are also precise. If you fail to comply, the debtor may be able to set your demand aside. If this is done through the courts, you may have to pay costs.
In what follows, we assume that the statutory demand has been properly completed.
How to serve your statutory demand
We have seen that if your demand is to present a real threat, it must be such as to enable you to follow up with a bankruptcy or winding up petition. How you serve the demand on your debtor is crucial in that qualification process.
You can serve:
using a professional process server
Often called a bailiff for slightly different work. For upwards of £50 (in 2012) they will serve your debtor personally and provide you with an affidavit of service suitable for supporting your claim in court. Easy. But they cannot serve if the debtor cannot be found in person.
You can save money if you know where the debtor is. But take a friend who can later provide an affidavit as to his presence. Without it, the judge might not believe you alone.
by post, personally
Post the demand first class, noting time and date and place. In addition, we advise that you send a copy by recorded delivery. Send that a day later, since acceptance may be refused. If it is refused, you must rely on the first class post copy. If accepted, it provides irrefutable evidence of delivery. Consider dressing the letter in a larger package so that it is not immediately apparent that it is a letter. It is more likely to be accepted.
in person or by post through a third party
As above. A third party may have slightly more credibility than you
If you have no idea where the debtor is and you have served by post at last known address, you may still doubt that he has received the demand. The judge will doubt it too! All you can do is advertise in the area where the debtor was last seen / known. Your advert should be formally worded, addresses to the debtor, and to the effect that a statutory demand has been served on [his name] at [his last known address].
Requirements for proof of service of statutory demand
- Proof of service is effected through a sworn affidavit. Today, many people prefer to swear a "declaration" which doe not involve mention of any deity.
- When you issue a petition for bankruptcy or winding up in court, you must also file an affidavit (or declaration) 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 served it.
- If service of the demand (however effected) has been acknowledged in writing either by the debtor himself, or by some person who states in the acknowledgment that he is authorised to accept service on the debtor's behalf, then:
- the affidavit must mention this fact;
- the affidavit must be made either by the creditor or by a person acting on his behalf;
- the acknowledgment of service must be exhibited to the affidavit.
- If no acknowledgment of service has been received, then the affidavit must be made by the person [or persons] having direct personal knowledge of how the demand was served. That refers to the person who handed the demand to the debtor or posted it to his address or the registered office of a company. That affidavit must specify:
- If the demand was served personally, full details of the procedure and circumstances;
- how, if at all, the demand was brought to the attention of the debtor;
- the latest date by when, to the best of the knowledge, information and belief of the person making the affidavit, the demand must have come to the debtor's attention. That latest date for receipt, specified in the affidavit, is likely to be deemed by the court to be the date on which the statutory demand was served on the debtor.
(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.)
- If the whereabouts of an individual are quite unknown, or at least doubted, the creditor should also advertise the fact of the statutory demand in a newspaper covering the area of the last known whereabouts of the debtor. If he does this, his affidavit should also contain:
- the creditor's reasons and circumstances why he was unable to discover the whereabouts of the debtor; and
- the date or dates on which, and the newspaper in which, the statutory demand was advertised under that rule.
- The creditor must also attach to the affidavit a copy of the advertisement of the statutory demand.
- In every case, the court may decline to file the petition if not satisfied that the creditor has discharged his obligation in respect of service of the demand.
Issuing a petition
A petition for bankruptcy or winding up can be presented at any time between three weeks and four months after service of the statutory demand.
Download the forms and read the simple, clear instructions and follow the example text given. Start at:
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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Statutory demand form and notes: service on a company or LLPPrice £12.00 Format Available: Read More
Statutory demand form and notes: service on an individualPrice £12.00 Format Available: Read More
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