STATUTORY DEMANDS
A Statutory Demand is a legal formal demand served by a creditor against either an individual or a company for a debt owed by the debtor to the creditor for more than £750 if the debtor is a company or more than £5,000 if the debtor is an individual.
A Statutory Demand should only be served by a creditor in circumstances where the debt in question is undisputed. If there is a genuine dispute then, instead of issuing a statutory demand, the creditor should bring a county court claim (known as a Part 7 claim) for the dispute to be determined by the court. However there seems to be a growing trend for creditors/debt collectors to use the service of statutory demands as a debt collection tool for debts that are, or could be, disputed.
Once a Statutory Demand is served the debtor (individual or company) has 18 days to make an application to court to set aside the statutory demand. The Statutory Demand should contain the details of the court the application to set aside should be made to.
If the application is not made by the debtor within the 18 day period the creditor is in a position after 21 days from service of the Statutory Demand to issue a bankruptcy petition for an individual debtor, or a winding up petition for a company.
Applications to Set Aside a Statutory Demand
The Insolvency (England and Wales ) Rules 2016, which can be accessed at https://www.legislation.gov.uk/uksi/2016/1024/article/10.48/made , govern the service and set aside of Statutory Demands. Rules 10.4 and 10.5 are applicable for setting aside a Statutory Demand. ‘Setting aside’ a Statutory Demand means making an application to the court for a court order which cancels it.
The Statutory Demand need to be carefully checked to see if it is compliant with the Insolvency Rules, including the legitimacy of the debt specified in the demand, and if the required legal procedures for service have been followed by the sender. If the Statutory Demand has been served by an assignee then they should be required to provide evidence of a legal assignment.
Time Period
The application to set aside a Statutory Demand must be made by the debtor, within 18 days from the date of service of the Statutory Demand. The filing of the application stops the clock ticking on the 18/21 day time periods.
The Insolvency Rule 10.2 provides that, where the Statutory Demand is advertised for substituted service the creditor must do “all that is reasonable” to bring the Statutory Demand to the debtor’s attention.
Form and Content of the Application
Rule 10.4(3) sets out what information the application to set aside must contain. Briefly, the application must:
- Identify the debtor
- State that the application is for an order to have the Statutory Demand set aside
- Give the date of the Statutory Demand
- Be dated and signed by the creditor or someone authorised to act on their behalf
Insolvency Rule 10.4(6) also provides that the application to set aside the Statutory Demand must be supported by a witness statement. The witness statement must set out:
- The date the debtor became aware of the Statutory Demand
- The grounds on which the debtor claims that it should be set aside (see Rule 10.5 below)
- Any evidence in support
The Statutory Demand must also be exhibited to the witness statement “if it is in the debtor’s possession”.
Appropriate court or hearing centre
Applications to set aside a Statutory Demand must be made to the debtor’s own hearing centre in accordance with Rule 10.48 (subject to the conditions outlined in that rule). The relevant courts should be specified in the Statutory Demand by the creditor.
Rule 10.5 – Hearing of Application to Set Aside
Insolvency Rule 10.5 sets out the procedure and the court’s powers on receiving and dealing with a to set aside Statutory Demand.
Court’s power to dismiss
Insolvency Rule 10.5(1) and (2) provides that a court may, on receipt of an application to set aside Statutory Demand, dismiss it if it considers it to be baseless, without listing for a hearing. The time for the debtor to comply with the Statutory Demand will then run again from the date the application Statutory Demand to set aside is dismissed.
Hearing
If the application to set aside the Statutory Demand is not dismissed on paper by the court, the court must fix a a date for hearing, and must give at least 5 business days’ (which will be clear days) notice to the debtor (or their solicitor), the creditor and “whoever is named in the Statutory Demand as the person with whom the debtor may communicate about the demand“.
Summary determination or adjournment
When the Set Aside Application is initially heard, the court will consider the evidence available and may either:
- Summarily determine the Set Aside Application (i.e. rule in either party’s favour on summary basis); or
- Adjourn the hearing giving appropriate directions for a future hearing
Usually a summary hearing will be listed for about 20 minutes, at which the court will adjourn with directions for a more substantial hearing. In practice the parties may agree their own directions and adjourn the listed hearing by consent.
Grounds for Setting Aside Statutory Demand
Insolvency Rule 10.5 provides that the court may grant the application to set aside and set the Statutory Demand aside if there is a genuine dispute.
Undervalued Security
If the creditor holds some security in relation to the debt, and this has been included within the Statutory Demand (as per Insolvency Rule 10.1(9)), but the court concludes that the Statutory Demand undervalues this security, the court may order the creditor to amend the Statutory Demand. This will not affect the creditor’s right to present a Bankruptcy Petition relating to the original Statutory Demand.
Court Order – Dismissal
If the court dismisses the application to set aside the Statutory Demand, it must make an order authorising the creditor to present a Bankruptcy Petition either as soon as possible or at a date specified by the court.
Court Order – Setting Aside
Insolvency Rule 10.5(6) provides that a court order approving an application to set aside a Statutory Demand must contain:
- identification details of the debtor
- the date of the hearing
- the date of the Statutory Demand
- an order that the Statutory Demand be set aside
- details of any further order made
- the date of the order
All orders, whether to set aside the Statutory Demand or to dismiss the Set Aside Application, must be delivered by the court to the creditor as soon as possible.
If you have received a Statutory Demand and require legal assistance please do not hesitate to contact us as time is of the essence.