A statutory demand is a formal written demand for payment of a debt, which is made by a creditor to a debtor under the law of some countries, including the United Kingdom and Australia.
It is a legal document that requires the debtor to pay the debt owed to the creditor within a certain period, usually 21 days, failing which the creditor may initiate bankruptcy or liquidation proceedings against the debtor.
In the UK, a statutory demand is issued under the Insolvency Act 1986 and must include specific information about the debt owed, such as the amount and details of the creditor and debtor. If the debtor disputes the debt or believes it is not owed, they can apply to set aside the demand within 18 days of receiving it.
If the debtor fails to pay the debt or apply to set aside the demand, the creditor can take further legal action to recover the debt, such as issuing a winding-up petition to force the debtor into liquidation.
You should always consult a statutory demand solicitor to get specialist advice on matters related to insolvency.
Process of issuing and responding to statutory demands
The process of issuing and responding to statutory demands typically involves the following steps:
- Issuing the statutory demand: The creditor prepares a formal demand for payment of the debt and serves it on the debtor. The demand must be in the prescribed form and must include details of the debt owed.
- Timeframe for response: The debtor has 21 days to respond to the statutory demand. If they fail to respond within this time, the creditor can assume that the debt is undisputed and proceed with a bankruptcy or winding-up petition.
- Responding to the statutory demand: The debtor can respond to the statutory demand in one of three ways: they can pay the debt in full, they can make an arrangement to pay the debt in installments, or they can apply to set aside the demand.
- Setting aside the demand: If the debtor applies to set aside the statutory demand, they must provide evidence that the demand is defective or that they have a genuine dispute about the debt. If the court agrees that the demand should be set aside, the creditor will not be able to proceed with a bankruptcy or winding-up petition based on that demand.
- Bankruptcy or winding-up petition: If the debtor fails to respond to the statutory demand, or if their application to set aside the demand is unsuccessful, the creditor can proceed with a bankruptcy or winding-up petition. This will result in the debtor’s assets being seized and sold to pay off the debt owed.
Overall, the process of issuing and responding to statutory demands can be complex and time-consuming, and it is important for both creditors and debtors to seek legal advice if they are involved in this process.
In conclusion, the process of issuing and responding to statutory demands is a formal legal procedure used in various jurisdictions to recover debts owed by individuals or businesses. The process involves issuing a formal demand by the creditor to the debtor, which must be in writing and specify the debt owed, the amount owed, and the timeframe for payment.