About these forms
A statutory demand is an ancient but still incredibly powerful debt collecting device. The law assumes it merely paves the way for a bankruptcy or winding up petition, but the threat of a petition can spur repayment from even the most unwilling debtor.
Furthermore, the procedure to issue these forms is very easy to follow. Using these forms, the guidance and the letter in this pack you should be able to issue a demand yourself without needing to involve solicitors or pay court fees.
The format prescribed by the law
We provide you with three versions of form 4.1 under section 123(1)(a) or 222(1)(a) of the Insolvency Act 1986.
Some of the text in the forms is laid down in the Insolvency Act 1986, and therefore must be left precisely as it is. We make clear what that is in the guidance notes that we provide with the documents.
Although we provide the forms in a traditional format, the layout is not laid down by law, so we are able to provide our own more user friendly version of the form as well.
When to use
If you are trying to recover debts from an individual or business partnership (but not a limited liability partnership), you can serve the notice on any partner as if you were recovering the debt from an individual. It is usual to choose the most senior partner, but you can pick any. Just make sure you choose a person who does have the wealth to repay you.
If you are trying to recover debts from a company or a limited liability partnership, then you must use the company version of the form.
Statutory demands are not served as often as they could be. A common misconception is that a solicitor is needed to prepare the forms, or that serving one is a difficult process or a certain path to litigation. In fact, in the right circumstances it is a fast and efficient way to collect a debt.
The key is that your debtor has to believe that you will take the process further to make him bankrupt or wind up his company if he fails to pay. We advise that you should take that step if you need to do so, but you will find that in most cases you will not have to go further than a statutory demand. Now consider these points:
By law, the debt must be at least £750. There is no cost or filing or registration necessary.
If your debtor is to believe you will follow up with insolvency proceedings, you have to make him see that it will be worth your while. That means covering the fee on the petition to wind up and adding something to cover the aggravation of litigation. We suggest that the minimum amount that you should pursue is £1,000.
You will not be paid if your debtor truly does not have the money. However, it is amazing how money is found when a creditor really presses hard.
You have to be certain that what is owed is a simple money debt. You cannot issue a statutory demand for a case that could need a judge to decide.
It goes without saying that you should not expect to have an on-going relationship with the debtor.
You should reckon that your debtor is likely to repay you rather than risk his reputation. This is particularly true against large companies, companies where reputation is important to business, and to governmental organisations. (You could not actually wind up the Ministry of Defence, but they would certainly pay you fast if you issued a statutory demand!)