Are clients and customers trying to avoid paying you for goods that have already been delivered or services you’ve already provided? If so you’re likely to feel a sense of injustice if there is no good reason for non-payment. You may want to consider serving a Statutory Demand (SD) against the person that owes you money. It is an affordable way of recovering what you are owed.
What is a Statutory Demand?
A Statutory Demand can be made by anyone who is owed money by an individual or company as long as the debt was not incurred more than six years ago. You do not even need a solicitor’s help to complete or file one. For an individual, the debt needs to be over £5k but for a limited company, it is only £750.
What Kind of Statutory Demands Are There?
There are several SD forms and you will need to pick the correct one for your situation. If you are in England or Wales and are owed money from an individual, there are three forms. The first is for debts that need to be paid immediately. A second is for debts that are immediately payable following a judgement or court order. The third is for when you know that the debtor will not be able to pay immediately. This form states that you require the debtor to pay you in the future. If you are owed money from a limited company there is a different form that you must fill out. Finally, residents of Scotland must fill out a different form in order to make an SD.
How do you serve a Statutory Demand?
Once you have filled out the correct form you will need to serve it to the debtor. There is a degree of flexibility on the method of service allowed by the court. As a guide, if the debtor is proving evasive or has ceased to communicate in response to the pre-SD recovery activity then you should have the SD personally served. This may involve tracing activity to locate the debtor if they have moved. However, this and the personal service of the Statutory Demand will usually be money well spent. This is because it may trigger the desired response, being full payment or an agreed payment arrangement. If neither of these occurs, then you will have a legally secure basis upon which to escalate the recovery process. Failure to properly and legally serve an SD can mean that your debtor may be able to continue to avoid paying.
What Happens If a Debtor Ignores the Statutory Demand
Once the SD is served, the recipient has 21 days to either pay the debt or respond to the demand. If they do not do either within that 21 day period, you will then be able to take further legal action. If an individual owes you more than £5000 you can start bankruptcy proceedings against them. For a company that owes you more than £750, you have the option to file to “wind up” that company. After the 21-day deadline passes, you have four months to either begin Bankruptcy Proceedings or file to “wind up” a company. If you wait longer you will have to provide an explanation for your delayed response to the courts.
Both escalation options, be it a private individual or company, can prove costly and time-consuming. Therefore some due diligence to find out the likelihood of a positive outcome is vital. The old mantra about “suing a pauper” is relevant here.
Personally, I would advise obtaining a judgement prior to SD activity since this has the benefit of being quite inexpensive and simple. It eliminates the statute of limitations issue, damages the debtor’s credit status and provides a route to the high court if necessary and/or a charging order should the debtor own a property. An SD is a pre-requisite to a bankruptcy petition. If this is the ultimate strategy, then this should be your priority.