By Haris Ahmed
Solicitor
Borneo Martell Turner Coulston
THE significance of a statutory demand (SD) is not to be underestimated and companies would be well advised to act promptly once they are served with a SD.
So what is a statutory demand?
An SD is a formal, written demand for payment of a debt served by a creditor on a company in accordance with the Insolvency Act 1986. The rules in relation to the SD are contained in the Insolvency Rules 2016.
A failure to comply with the SD within a period of 21 days can have serious ramifications for the company. If the company neglects to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor then it raises a statutory presumption that the company is unable to pay its debt. It is a precursor to presenting a winding up petition at court.
Creditors may also feel emboldened by the fact that a SD can be served on a company for a sum as little as £750. By comparison, a bankruptcy petition against an individual, which is beyond the scope of this article, cannot be presented unless the debt is £5,000.
Serving an SD is an inexpensive process and a creditor does not necessarily need a solicitor to draft it. Since 6 April 2017 a creditor can rely on SD1 form available online at the HM Courts and Tribunal Service website and serve it on the company’s registered address. Given that the SD can be prepared and served on the company by the creditor relatively informally, it is not uncommon for a company, especially if the SD is for a relatively low amount, just above the £750 threshold, to be somewhat complacent in overlooking its significance.
If an SD is not paid or defended the creditor can present a winding up petition, which can lead a judge to make a winding up order and the company will enter compulsory liquidation. This means that a liquidator will be appointed who will realise and sell the assets of the company to repay the creditors. The liquidator can also investigate the conduct of the directors and officers and look into the affairs of the company to determine any wrongdoing before and during liquidation, which may then carry criminal and/or civil penalties.
It is, therefore, inadvisable for the company to ignore the SD on the belief that it will not face any adverse consequences and will defend the winding up petition if one is presented later. As stated above, if the company does nothing following the service of the SD and three weeks have elapsed it raises a statutory presumption that the company is unable to pay its debts. Such statutory presumption, unless rebutted, is sufficient for the banks to freeze the company’s account, consequently having a severe knock on effect on the company’s finances.
There are limited grounds on which an SD can be successfully challenged. The company can apply for an injunction within the 21 days of service of the SD seeking to restrain the creditor from presenting the winding up petition. If legal advice is sought promptly it may even be possible to agree with the creditor not to present the winding up petition hence staying costs.
Here at Borneo Martell Turner Coulston Solicitors we have a wealth of experience acting both for the creditors and the debtor company and are able to provide cost effective advice tailored to your matter.
The writer is a solicitor and is available at 01604 622101 or email
