Not only can being owed money be incredibly stressful, it may also have negative knock-on effects on both your business and your personal life. At Lysander Law, we know that the process of getting the money that you are owed back also has the potential to be anxiety inducing, especially if those that owe you money are aggressive or unresponsive.
If mutual payment agreements are not possible, now may be the time to serve a statutory demand.
What exactly is a statutory demand?
A statutory demand is a formal demand from an individual or company, known as a creditor, for the payment of a debt from another person or company, known as a debtor. A statutory demand is a precursor to insolvency proceedings but the issuing of the demand itself is not within a court process. The implication of not satisfying a statutory demand can be severe. The prospect of insolvency proceedings (discussed below) tends to weed out those debtors who are simply withholding funds, from those debtors who are truly unable to make payment.
The content of a statutory demand, and the requirements to deal with the demand, differ slightly depending on whether your debtor is a limited company or an individual. In both cases, a statutory demand can only be served in respect debts that are undisputed and unsecured.
From the date the demand is served, the recipient has 21 days to either pay the debt in full or reach a satisfactory agreement with the creditor such as paying by instalments, refinancing or providing security for the debt.
What if the debtor doesn’t pay after 21 days?
A lack of payment within this period means that you can issue insolvency proceedings (a ‘winding up’ petition against a company debtor or a ‘bankruptcy’ petition against an individual debtor) on the basis of the unpaid statutory demand.
To issue a winding up petition, the debt due and owing must be equal to or more than £750. In order to issue a bankruptcy petition, the debt due and owing must be equal to or more than £5,000.
To issue a winding up or bankruptcy petition you will need a certificate of service showing the time, date and the way in which the statutory demand was served on the debtor.
What exactly does it mean to ‘wind up’ a business?
The court process is known as ‘compulsory liquidation’. At the winding up petition hearing a judge will decide whether it is appropriate to make a winding up order against the company debtor. If the winding up order is made, the company is placed into liquidation immediately and a liquidator (initially the Official Receiver) is appointed over the company. The directors no longer have control of the company or power over its assets from the time that the winding up order is made. The liquidator will wind down the company’s business and sell any assets of value for the benefit of the company’s creditors. When a liquidation is complete, the company is dissolved and no longer continues to exist.
What exactly does it mean to ‘bankrupt’ someone?
When a bankruptcy order is made against an individual, all of their assets vest in their Trustee in Bankruptcy (“the Trustee”). The Trustee thereafter administers the bankruptcy estate, and much like in a liquidation, seeks to sell any assets of value for the benefit of creditors. Any debts of the individual that exist at the time of the bankruptcy order will fall into the bankruptcy estate. The Bankrupt will be responsible for any debts that they accrue after the date of the bankruptcy order.
When will I be repaid?
It is important to note that both winding up petitions and bankruptcy petitions are class actions for the benefit of ALL creditors, not just the creditor that instigated the insolvency proceedings. Placing a company into liquidation, or making someone bankrupt, does not therefore necessarily guarantee that you will receive repayment of your debt, in full or in part. Whether you receive payment will be entirely dependent on your status as a creditor and whether there are sufficient realisations in the bankruptcy or liquidation estate for a distribution to creditors. That being said, if the debtor has minimal creditors and sufficient assets of value, the insolvency process can often be a valuable tool for recovery.
We understand that knowing which way to turn when it comes to debt can feel impossible and starting legal proceedings can be worrying, especially on your own. If you are owed a debt and need advice on what to do next, our specialist and experienced Insolvency team are here to help.
Contact us here and we will be more than happy to discuss your options with you and, if needed, commence action.