Overview
A statutory demand is a formal procedure used by creditors to demand the settlement of an outstanding debt from a debtor. It is a legal instrument commonly used in the United Kingdom to enforce debts. If the debtor fails to comply with the demand within a specified period, typically three weeks, the failure can serve as evidence of an inability to pay debts, which supports a petition for compulsory liquidation under the Insolvency Act 1986.
Key Features
- Purpose: To provide a formal and legal method for creditors to demand repayment of debts.
- Timeframe: The debtor is usually given 21 days to repay the debt or propose a satisfactory solution.
- Consequence of Non-Compliance: Failure to meet the demand can be used as evidence of insolvency, leading to potential compulsory liquidation.
Examples
- Example 1: A small business supplier issues a statutory demand to a client who has failed to pay for delivered goods. If the client does not pay within the specified timeframe, the supplier may use the non-payment as evidence to push for the client’s company liquidation.
- Example 2: A landlord issues a statutory demand to a tenant for unpaid rent. The tenant fails to respond or pay within 21 days, allowing the landlord to petition for the tenant’s compulsory bankruptcy.
Frequently Asked Questions (FAQs)
1. What is a statutory demand?
A statutory demand is a formal request issued by a creditor to a debtor demanding the repayment of an amount owed.
2. What happens if a debtor does not comply with a statutory demand?
If a debtor fails to comply within the given period (typically 21 days), this can be taken as evidence of their inability to pay debts, supporting a petition for compulsory liquidation.
3. Can a debtor contest a statutory demand?
Yes, a debtor can apply to have the statutory demand set aside on grounds such as the debt being disputed or already settled.
4. Who can issue a statutory demand?
Any creditor to whom a debtor owes money can issue a statutory demand.
5. What is the purpose of a statutory demand?
The primary purpose is to prompt debt repayment or to establish grounds for further legal action if the demand is unmet.
6. Is there a minimum debt amount for issuing a statutory demand?
Yes, typically, the debt must be for a specific minimum amount—currently, the threshold is £750 in the UK.
7. Can a statutory demand be served for non-monetary disputes?
No, it is specifically used for monetary debts.
8. What are the consequences for the debtor upon ignoring a statutory demand?
Ignoring a statutory demand can lead to legal actions like petitions for compulsory liquidation or bankruptcy.
9. How is a statutory demand served?
It must be served personally on the debtor or handed to an individual authorized to receive it on their behalf.
10. Effect of Incorrect Statutory Demand?
An incorrectly issued statutory demand can be set aside by the court, leading the debtor to avoid statutory consequences.
Related Terms with Definitions
- Compulsory Liquidation: A court-ordered process of winding up a company’s affairs, typically initiated by creditors when a company cannot pay its debts.
- Insolvency Act 1986: Legislation in the UK governing the insolvency processes for companies and individuals.
- Bankruptcy: Legal proceeding involving a person unable to repay outstanding debts and seeks relief through court orchestrated measures.
Online References
- Insolvency Act 1986 (legislation.gov.uk): Read more
- UK Government Guidance on Statutory Demands: Learn more
- Citizens Advice on Debt Recovery Options: Citizen’s Advice
Suggested Books for Further Studies
- “Debt Recovery Handbook” by Roger Mason
- “A Practical Guide to Defending Litigious Debt Claims” by LAG Publishing
- “Insolvency Law: Corporate and Personal” by David Milman
- “McKnight, Paterson, & Zakrzewski on the Law of International Finance” by Victor P. Goldberg
Accounting Basics: “Statutory Demand” Fundamentals Quiz
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