Statutory Demands

A Statutory Demand is written demand for money owed. In its proper form it is a formidable document demanding payment and stating that if not made a bankruptcy petition will be presented. It is not a court document as such and has the additional advantage that there is no court issue fee and the only probable cost will be that of service on the debtor.

The debtor will be aware that this is a first step in bankruptcy and if ignored he could be wiped out financially. He ignores at his peril. If he is to avoid the risk and dire consequences of being made bankrupt he must either pay you or have the Statutory Demand set aside by applying to a court.

When can a Statutory Demand be used?

Bankruptcy, and therefore the issue of a Statutory Demand, is limited to debts of £750 or more. There are, however, other limitations as to when you can or should issue a Statutory Demand:
The amount owed should be significant and sufficient to justify the cost of issuing a bankruptcy petition. Although the limit is £750 it should usually be much more.

The Statutory Demand must be completed accurately. The Insolvency Act sets out what must be contained and if this is not complied with, the Statutory Demand will be invalid and will be set aside by the Court. There are three separate Statutory Demand forms applicable to individuals and one for Companies. It is essential to use the correct one.

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Applications to set a Statutory Demand aside

The debtor now has 21 days to respond to the Statutory Demand. If he pays up, that is fine but the seasoned debtor may well decide to call your bluff and do nothing. You will then be left with no other remedy than to give in, take no further action with the Statutory Demand, or file for the debtor’s bankruptcy. The other alternative the debtor may choose is to apply to the Court for the Statutory Demand to be set aside. The Court will then fix a Hearing date, provided that in the application the debtor has set out legitimate reasons which would allow the Court to set the Demand side. Where a debtor wishes to make an Application to the Court for a Statutory Demand to be set aside, this must be done within 18 days of the date of service of the Demand upon him. The application should be in Form 6.4.

The application must be supported by an Affidavit in Form 6.5 (below) specifying the date on which the Demand came into the debtor's hands, stating the grounds on which he claims that the Statutory Demand should be set aside and must exhibit a copy of the Demand. No fee is payable for the application. The court will affect service (but usually only after a District Judge has considered it and decided that it stands a chance of being successful) and it is therefore necessary for the debtor to provide sufficient copies of the application and affidavit.

The Court is empowered to extend the time to apply for an application to be set aside. Such an application can be made to the Court without notice to the other side and be supported by an affidavit giving both the reason for applying to set aside the Demand and the reason why the application was not made in time. A fee is a payable. The affidavit should also advise whether or not the debtor believes that the creditor has presented a bankruptcy petition.

The time before a bankruptcy or winding up petition can be issued may be waived if a creditor can show that there is a serious possibility that the debtor’s property or the value of any property will be significantly diminished during the three-week period.

The affidavit in support of an application to set aside should be in the prescribed form. The form contains a non-exhaustive list of possible reasons for setting aside. These are:
  • The debtor does not admit the debt. A reason must be given.
  • The debtor admits the debt, but it is not payable now.
  • Part of the debt is admitted, and the debtor will pay it now, but denies the balance of the debt.
  • Part of the debt is admitted, but it is less than the minimum bankruptcy amount (£750) and the balance is disputed.
  • The debtor admits the debt and is prepared to secure or compound it to the creditor's satisfaction.
  • The debt is fully secured or the un-secured element is below the minimum bankruptcy amount.
  • The debtor has a counterclaim or set-off equal to or exceeding the claim.
  • Execution of the judgement has been stayed by a Court.