Your letter to BBC’s Watchdog has been ignored and you are owed money for services rendered, yet your debtor refuses to pay, although you know it has the money.
What do you do next? Helen Conway advises how to issue a statutory demand for effective debt recovery.
What is a Statutory Demand?
A statutory demand is a legal letter that you serve on an individual or company that owes you money demanding they make immediate payment of the money owed, offer to secure the debt against property, or reach an agreement with you to repay in instalments.
The statutory demand form can be downloaded from the Insolvency Service website and served by post. There are no court fees and you don’t need a solicitor to complete it.
What effect does it have?
If the debtor chooses to ignore the demand, when the 21-day time limit for a response expires, you are entitled to issue bankruptcy proceedings against them in the case of an individual, or winding-up proceedings for a company.
If you just want your money and don’t want to make anyone bankrupt, the threat of the bankruptcy or liquidation should be enough to frighten your debtor into paying you. So, you should not have to incur the costs of issuing a bankruptcy or winding-up petition in court.
Indeed, the Insolvency Service say it is so successful that following a statutory demand, in 99% of cases, a bankruptcy petition is never issued. Your debtor will be quick to pay you if the individual or company has assets and a reputation to protect.
When not to use a Statutory Demand
You want your debtor to believe you intend to pursue them all the way to the Bankruptcy Court or Companies Court (for company winding up) if necessary, even if you have no intention of doing so.
You cannot issue a bankruptcy or winding-up petition in court for debts of less than £750, and there is also a court fee of £150 for the petition. Therefore, your debtor will know you are probably bluffing with the threat of bankruptcy or liquidation if you send a statutory demand claiming an amount of less than, say, £1,000.
Also, a statutory demand must only be used where there is no doubt that the debt is owed, or your debtor does not have a valid counterclaim against you.
If there is a bona fide dispute about the debt, the debtor will have good grounds to go to court to have the statutory demand set aside. Then you could find yourself responsible for the cost of abusing the court process.
Completing and serving the Statutory Demand
There are two forms to use, depending on whether your debt is owed by an individual or company. Both are available from the Insolvency Service website.
You can claim only for the debt that is due and payable at the date the statutory demand is completed. Interest may also be claimed if your contract with your debtor provides for it.
The wording is straightforward, so there is no need to incur legal fees. Simply write on the back of the form what is owed, how the debt arose, and the amount due at the date of the demand.
Effective use of the Statutory Demand
Ensure your debtor does not think you are not using the statutory demand just as a scare tactic. They must believe you are so determined to recover your debt you are prepared to pay the cost of taking them all the way to the Bankruptcy or Companies Court if they do not pay.
Although you can serve the statutory demand by post, it is worth paying the £100 fee for a process server to serve it on an individual at home, or at the main office in the case of a business.
For this fee, the process server will provide you with an affidavit or sworn statement that can be used in court as evidence that the demand was served in accordance with the Insolvency Act 1986.
After service it should just be a case of waiting for the cheque to land on your doormat.
Helen Conway is a commercial litigation solicitor at Dundas and Wilson’s London office. Before qualifying as a solicitor, Helen worked as a journalist in the travel industry and was a reporter with Travel Weekly.