What Is A Statutory Demand?
A statutory demand is a document demanding that the client either pays the debt in full, or in part in a manner acceptable to the creditor, which could be by installments. Form 6.1 is used where there is no judgment; form 6.2 is used where there is a judgment.
The statutory demand does not have to be issued by the court or even seen by it at this stage. If the debtor does not comply with the statutory demand within 21 days, the creditor can issue a creditor's petition and ask the court to make a bankruptcy order. A creditor does not need a judgment in order to be able to serve a statutory demand for the debt. However, without a judgment the creditor might find that the debtor is able to challenge the existence of the debt (see below). A creditor who does have a judgment is not required to attempt to enforce it by means of execution against goods first of all; the creditor can serve a statutory demand instead.
Responding To A Statutory Demand?
Although some creditors use statutory demands as a method of debt collection with no intention of making the debtor bankrupt, statutory demands should never be ignored (unless the debtor has decided s/he wants to go bankrupt). On receipt of a statutory demand, the person should consider the following options:
Whether to apply for an administration order or propose an IVA.
Making payment(s) either to clear the debt in full or reduce it below the £750 bankruptcy limit.
Making an offer to pay the debt by installments if the debt is subject to a judgment as well as trying to negotiate with the creditor, the debtor should apply to the court to vary the judgment to enable payment by installments with a view to arranging this before the creditor can obtain a bankruptcy order; in appropriate circumstances, the client could apply for a time order.
Offering a voluntary charge over her/his property as security for the debt.
Applying to set aside the statutory demand within 18 days.
Setting Aside A Statutory Demand
If the statutory demand has been 'set aside' (i.e. cancelled) the creditor cannot apply for a bankruptcy order. The debtor can apply for the demand to be set aside on the grounds that:
There is a substantial dispute about the money said to be owed, i.e. where there is a 'genuine triable issue', if the creditor has obtained a judgment, the court will not at this stage enquire into the validity of the debt.
The debtor has a cross-claim against the creditor which equals or exceeds the amount of the debt.
The creditor holds security which equals or exceeds in value the amount of the debt.
On 'other grounds', e.g. the debt is statute-barred or the demand has not been signed.
The application is made on form 6.4 supported by an affidavit in form 6.5. There is a £60 court fee but the client can apply for exemption or remission. The application will be put before a district judge. If s/he considers there are no grounds for the application, the district judge can dismiss it without a hearing. Otherwise, a hearing will be arranged at which the district judge will consider the application.
The court will not set aside a statutory demand on the ground that the creditor has unreasonably refused an offer of payment or security, or even on the ground that the creditor has refused to consider such an offer. Nor will the court set aside a demand on the ground that it is for an excessive amount. In such a case, the debtor is supposed to pay the amount admitted to be due and only apply to set aside as to the amount in dispute. The court will not 'do a deal' with the client to set the statutory demand aside on condition that s/he makes a payment.
If the application to set aside is dismissed, the creditor will be given leave to present her/his bankruptcy petition.
If you have any further questions regarding statutory demands, complete the contact form and we'll call you back as soon as possible and will gladly answer any questions you may have.