Statutory demands can be very effective. Serving a statutory demand upon someone who owes you money together with the threat of bankruptcy will concentrate a debtors mind on resolving matters.
Court proceedings are one only way of enforcing payment of money owed to you. Another is to serve a statutory demand on the debtor. This could lead to the person (or company) who owes you money being made bankrupt (or if a company wound up) and is guaranteed to concentrate the mind on resolving the situation. It is a very powerful debt-collecting device.
A statutory demand is a written demand for money owed. In its proper form it is a formidable document demanding payment and stating that if not made, a bankruptcy petition will be presented. It is not a court document as such, and has the additional advantage that there is no court issue fee, and the only probable cost will be that of service on the debtor.
The debtor will be aware that this is a first step in bankruptcy and, if ignored, he could be wiped out financially. He ignores at his peril. If he is to avoid the risk and dire consequences of being made bankrupt, he must either pay you or have the statutory demand set aside by applying to a court.
When can a statutory demand be used?
Bankruptcy, and therefore the issue of a statutory demand, is limited to debts of £5000 or more. There are, however, other limitations as to when you can or should issue a statutory demand:
The amount owed should be significant and sufficient to justify the cost of issuing a bankruptcy petition. It must be at least £5000 but often much more.
You must be absolutely certain as to the debt and amount owed. If it can be disputed or if there is some doubt the issue would have to be decided by a court and the debtor could succeed in having the statutory demand set aside. You would then have wasted your time, given your debtor a moral victory, and still have to issue court proceedings.
The debt must have crystallised. It must be for a certain amount, as you cannot ask a court to decide the amount you are owed.
You should be certain that the debtor is able to pay if sufficient pressure is exerted. It must be a case of ‘won’t pay’ rather than ‘can’t pay’.
Although you do not wish to have to issue a bankruptcy petition, you are prepared to do so if necessary.
Note. It has been held by the court that it could be taken as an abuse of the process of the court and harassment of a debtor to send out statutory demands when there is no intention of bringing bankruptcy proceedings.