Statutory Demands - "Show me the Money!!!"
The Insolvency (England and Wales) Rules 2016 came into force on 6 April 2017, which makes some changes to the Statutory Demand regime. This note sets out a general summary (albeit very brief) of the basic principles of current law and should not be construed as legal advice. Readers are reminded to seek advice specifically in respect of their own circumstances.
A statutory demand has a number of advantages over issuing a debt recovery claim in the Civil Courts; namely that the courts are not involved, it is quick and inexpensive, and can result in prompt payment of a debt or identify points in dispute. However, it may also sully any ongoing business relationship, can be perceived as an aggressive step, and can lead to court proceedings should the debtor apply to set aside the Statutory Demand or seek an injunction preventing the issue of an insolvency petition. Note that statute-barred debts cannot be recovered by use of s statutory demand.
Put simply, a debtor who ignores a statutory demand for more than three weeks is at risk of being made bankrupt (if an individual) or insolvent (if a company), where the debt demanded is more than £5,000 (if an individual) or £750 (if a company). They are often used to apply pressure to a debtor to pay a debt and in some cases can be a precursor to insolvency proceedings (at creditor’s discretion), assuming that the creditor can show that the debtor cannot pay or has no reasonable prospect of paying the demanded debt. A Statutory Demand is, ipso facto, evidence of an inability to pay unsecured debts. Note that most secured debts cannot form the basis of a petition because by definition the secured goods can be recovered by the creditor in any event. However, like many general legal principles, exceptions exist.
Under the old rules, in order to bring a bankruptcy or insolvency petition against a debtor after service of a Statutory Declaration in either of Forms 6.1, 6.2, or 6.3 a creditor must have personally served the debtor and completed an affidavit of service in prescribed form. These forms have been replaced by new Forms SD2, SD3 and SD4 and all contain specific wording, and require the inclusion of specific information, derived from the new rules, including but not limited to the name and address of the debtor, amount owed, interest, and procedural information.
The debtor has 18 days after the date of service to apply to the Court to set aside the demand and an absolute limit of 21 days in which to respond. A statutory demand may be served on a legal person only where that debtor is subject to the jurisdiction of the courts of England and Wales, even where that debtor is outside of the jurisdiction, but in that case time limits are extended. Failure to do so may lead to bankruptcy or insolvency.
The requirement to swear and file a proscribed affidavit of service (formerly Form 6.21 or 6.22) has been removed and now a standard witness statement containing a statement of truth will suffice. Further, there is now no requirement to lodge an affidavit of service of statutory demand with the Court upon presentation of a bankruptcy petition, however it is still good practice to do so, as is keeping a contemporaneous note of how, when, where and on whom the document was served.
In civil claims part 6 of the Civil Procedure Rules applies to service, but in the case of statutory demands, the provisions of Schedule 4 of the Insolvency Rules 2016 apply., and creditors should continue to serve on individuals personally or, if serving on a company, by leaving the document at its registered office. The general rule is: ”do all that is reasonable to bring the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, serve the demand personally.” (Rule 10.2). If that is not possible, email, first class post or leaving at (in the case of an individual) delivering it to that individual’s residence. Interestingly, the Courts have allowed service by social media in civil litigation, though not in insolvency proceedings as yet.
The law of course is much more complicated and needs much more explanation than can be afforded in a short blog post. If you require advice in respect of any debt recovery proceedings, either a creditor or debtor, we are able to assist.