These are formal demands whose content is prescribed by statute.
There use is normally (but not always) the precursor to either issuing a bankruptcy petition against an individual or a winding up petition against a company.
- Section 268 of the Insolvency Act states that the debtor “appears to be unable to pay” if he has been served with a statutory demand- a demand in the prescribed form requiring him to pay the debt or to secure for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside OR
- execution on a judgment or order of any court in favour of the petitioning creditor has been returned unsatisfied in whole or in part e.g. where bailiffs fail to seize assets of sufficient value OR
- the debtor appears to have no reasonable prospect of being able to pay a debt if, but only if, the debt is not immediately payable i.e. a future debt, 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside.
There are 3 different types of statutory demands that can be used to prior to bankruptcy proceedings, the type used depends the situation.
Companies and Statutory Demands
The Statutory demand used prior to a winding up petition is also different from that used in Bankruptcy. In the demand used against a company, there is no mention in this type of of the Court to set it aside. This is because the application to set aside a statutory demand only applies within the bankruptcy regime.
Insolvency forms (including statutory demands) can be found at https://www.gov.uk/government/collections/bankruptcy-and-insolvency-forms
Service of Statutory Demands
A creditor must do all that is reasonable to bring the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, serve the demand personally. If personal service is not practicable in the particular circumstances, a creditor must do all that is reasonable to bring the statutory demand to the debtor’s attention. This may also include any other form of physical or electronic communication which will bring the statutory demand to the notice of the debtor.
Setting aside a Statutory Demand
Information on setting aside statutory demands can be found in both the Insolvency Rules 2016 (para 10.4) and the Civil Procedure Rules Insolvency Practice Direction (para 11)
The debtor can apply to the Court to have a statutory demand set aside, usually this must be within 18 days of the demand being served.
Grounds for Setting Aside Statutory Demand
- the debtor has a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the Statutory Demand.
- the debt is disputed on substantial grounds. The test for substantial grounds being if there is a ‘genuine triable issue’.