What to do if served with a Statutory Demand

By James Carpenter

Partner – Head of Commercial Litigation

04 April 2024

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An aggressive creditor will consider and potentially pursue payment of a debt by threatening a debtor with an insolvency process (Bankruptcy for an individual or Winding Up for a company).  Often such action will be preceded by the service of a Statutory Demand.  Although this is not a formal Court document, if one is received you should act immediately.  A failure to respond will have major consequences for a debtor.

If you accept that the debt is due – contact the creditor and make arrangements to pay the sums due.  Creditors want to be paid and as such you may be able to negotiate a payment plan.

If you dispute the debt – you must communicate the fact and nature of your dispute to the creditor.  Bankruptcy and Winding Up processes are not forums where disputes can or will be resolved.  If a debtor can show the creditor/Court that a genuine dispute exists (that extinguishes or reduces the debtor’s liability to below the insolvency thresholds), then the creditor will have to pursue a claim through the usual Court process. 

The following are common grounds for a dispute:

1. Is the Statutory Demand based on a legal debt?  The debt has to be based in law.  Commonly this will be a contract or a Court Judgment.  In the case of the former the debtor will need to show that there is a dispute as to whether there was a contract between the parties in the first place.  In the case of the latter, did the debtor ever receive the proceedings upon which the Statutory Demand is based?
2. Is it a demand for a “liquidated” debt?  A liquidated debt is a debt in which the amount is known by the parties at the outset.  If the amount of the creditor’s claim is for damages – i.e. a sum that needs to be decided by a Judge then this is not an appropriate process.
3. Is there a dispute regarding the goods or services supplied? Consider whether the demand relates to goods or services actually supplied by the creditor to the debtor.  If so, were they the correct goods/services or were they defective?

For a debtor, once a Statutory Demand (or a Petition) is received it is very important to take urgent action.  The consequences of ignoring a Statutory Demand or a Petition are severe.  If a letter to the creditor explaining the fact and nature of the debtor’s dispute doesn’t persuade them to withdraw the threat of insolvency, then it will be necessary to apply to the Court to prevent the creditor from issuing/advertising a Petition.

At Taylor Walton, our litigation team can help you determine whether the Statutory Demand or insolvency process can be challenged and, if so, how best to do so.  If you have received a Statutory Demand, a Bankruptcy or Winding Up Petition contact our litigation team immediately.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.