Statutory demands – how to make a statutory demand work for you!
Statutory demands – how to make a statutory demand work for you!
It's a small business nightmare: completing work and not getting paid for it.
You have used your expertise and performed the services agreed, yet your client has failed to pay you or is continually slow at making payment. Outstanding invoices and clients that are slow to pay, stall your cashflow and ability to grow your business.
If your debtors are company debtors, you may be able to issue a statutory demand; this will put pressure on those that owe you money. If, after its expiry date, the debt remains unpaid and undisputed, you can involve the Court to acknowledge the debt and subsequently start insolvency proceedings against your debtor (if you believe that the company is insolvent and unable to repay the debt).
What is a statutory demand?
A statutory demand is a document that provides notice to a debtor company that the debt owed must be paid within 15 working days from the date of service.
Once a statutory demand has been served, the debtor company can either:
1. Pay the debt within 15 working days from the date of service, or
2. Enter into a “creditor compromise” within 15 working days with all of its creditors or reach an agreement with you, regarding payment of the debt owed to you, or
3. File a High Court application to set aside the statutory demand under section 290 of the Companies Act 1993 within 10 working days from the date of service, or
4. Do nothing and let the statutory demand expire.
A statutory demand expires if the debtor does not (1) pay the debt or (2) reach a credit compromise within 15 working days from the date of service. Upon expiry of a statutory demand, an "act of insolvency" is considered to have occurred. This act of insolvency and the correctly followed statutory demand process provide suitable evidence for a creditor to file a sufficient application in the High Court to wind up the debtor company and claim that company is insolvent pursuant to section 289 of the Companies Act 1993. It is therefore certainly a way to motivate a slow-paying debtor or company with a longstanding outstanding debt to make payment to you.
Before issuing a statutory demand, it is important to seek relevant legal advice to ensure that it is appropriate in the circumstances. There are certain restrictions about the issuance of a statutory demand, and it is important to understand them. For example, the debt owed must be greater than $1,000, and it must be a company that owes the debt. Further, if the debtor company has ever disputed the debt or the amount due and there is a substantial dispute about that. In that case, serving a statutory demand will not be appropriate and the debtor company will likely initiate an application in the High Court to set aside the statutory demand. In fact, a subsequent application to the High Court to start winding up proceedings in the circumstances outlined above could be considered an abuse of process.
As such, it is highly recommended that any statutory demand is completed by a law firm to ensure that the procedure, given the severity of the outcome (liquidation of a debtor company), is not misused. If you have substantial company debtors and are considering serving a statutory demand, we can provide advice, and draft and coordinate service on your behalf. If the debt remains unpaid 15 working days post-service, Turner Hopkins will be available to make the requisite applications to the High Court.
If you would like further advice about dealing with outstanding debtor companies, to understand the process better or more information about how best to recover a debt owed to you or your company, please get in touch with one of our experts today. Turner Hopkins has a dedicated debt recovery team who, together with our litigation team, are available to assist with all your business debt recovery needs.