Why use a statutory demand?
There is nothing, but nothing that concentrates someone's mind more than prospective wipe-out.
If you issue a statutory demand and the debt is under 6 years old, you can follow it up 21 days later with a bankruptcy petition (if you serve it on an individual) or winding up petition (if you serve it on a company).
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 that 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 even for a relatively small amount.
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 is a form - no solicitors and 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. Most people assume incorrectly they need a solicitor to issue one.
The requirements for issuing a statutory demand are set out in the Insolvency Act 1986. Accordingly the Insolvency (England and Wales) Rules 2016 provide list of matters that the demand must contain. You must follow them precisely, but they are not complicated.
The fees are:
for a bankruptcy petition against an individual:
- an £990 petition deposit for managing the bankruptcy
- a further £280 for court costs
You may not issue for a debt of less than £5,000. This amount was changed last in October 2015.
for a winding up petition: against a company:
- £1,600 petition deposit to manage the ‘winding-up’
- a further £280 for court fees
The company must owe at least £750.
Much of the psychological impact of a statutory demand arises from the threat of bankruptcy or winding up. You cannot issue one for a sum less than the minimum debt level for a petition.
Remember as well that you cannot threaten disaster effectively to your debtor if you and they both know you want their continuing business. Of course, the same applies to a court claim.
When do you use a statutory demand?
Use it when:
- the debt is under 6 years old (otherwise first seek legal advice)
- you are chasing more than, say, £5,000 (if you serve it on an individual) and £750 (if you serve it on a company)
- you are absolutely certain that the debtor owes you the money
- the debt is crystalised - when you are certain of the exact amount owed 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 them in these extreme circumstances)
- you calculate that your debtor will pay rather than risk your issuing a petition
You must also be prepared to follow up by issuing a petition. You will hope that doing so 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 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.
So should you use one?
Provided you are certain that the debt is contractually due and your debtor has the money, you stand to gain by using a stat demand.
One works best with people and organisations who do have money and reputation, but are simply too arrogant, autocratic or bureaucratic to pay you.
Use one against large public companies or someone with a reputation to protect, where your debtor 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 can obtain the forms from Net Lawman:
The documents come with clear notes and also example letters you might send to your debtor with the form.
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 (England and Wales) Rules 2016 on proof of service on the debtor
The requirements for service of the demand on the debtor are precise.
If you fail to comply, the debtor may be able to set your demand aside. And 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
A professional debt collector is often called a bailiff for slightly different work.
For upwards of £100 (in 2016) they will serve your debtor personally and provide you with an affidavit of service suitable for supporting your claim in court. The process is easy. The only consideration is that they cannot serve a debtor if they cannot be found in person.
You can save money if you know where the debtor is. But take a friend or colleague who can later provide an affidavit as to their presence. Without it, the judge might not believe you alone.
By post, personally
Post the demand first class, noting the time, date and place that you posted it.
In addition, we advise that you send a copy by recorded delivery. Send that a day later, since acceptance may be refused.
If it the recorded delivery 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 a last known address, you may still doubt that they have received the demand.
The judge will doubt it too!
All you can do is advertise in the area where the debtor was last seen or known. Your advert should be formally worded, addressed to the debtor, and to the effect that a statutory demand has been served on them at their last known address. Specify exactly what these are.
Requirements for proof of service
Proof of service is effected through a sworn affidavit. Today, many people prefer to swear a 'declaration', which does 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 a 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 themselves, or by some person who states in the acknowledgment that they are 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 their 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 people 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 their address or the registered office of a company. That affidavit must specify:
- if the demand was served personally, with the 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 they do this, their affidavit should also contain:
- the creditor's reasons and circumstances why they were 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 their 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.