He / She Who Shouts the Loudest Normally gets Paid First
We all know the saying ‘He who shouts the loudest will always be heard’ isn’t always true but it does grab one’s attention. The same applies when it comes to debt recovery, you want to be the creditor that gets paid first and therefore you must take action that will make the debtor sit up and listen to you.
I am not advocating that statutory demands should be used in all circumstances however they are very useful and effective when used in the correct instances and they are the first formal stage in the insolvency process. Some would say it’s using a sledgehammer to crack open a nut, but ultimately it is a recovery method a creditor is entitled to use if it is owed money, subject to certain conditions being met which I mention further down.
Technically, a company or an individual is considered insolvent when it cannot pay its debts as and when they fall due or upon demand.
With commercial debt you can issue a Winding Up petition without the requirement of serving a statutory demand but if it transpires that there is an outstanding dispute the court may dismiss the petition with costs awarded against you or even worse an injunction.
The insolvency process must not be used where the debt is contested or disputed. Full stop, end of story. Having said that you may issue a statutory demand for the uncontested part of the debt subject to the following balance threshold.
If the debtor is an incorporated entity, in order to serve a statutory demand or issue a Winding Up petition, you must ensure that the debt is greater than £750. If the debtor is an individual or sole trader, then the debt must be greater than £5,000 and a statutory demand must be served prior to issuing a bankruptcy petition.
The statutory demand needs to be served in the correct manner for it to be effective and not contested down the line. These are all very important points because if any of them are not carried out in accordance with the Insolvency Rules then the debtor has the opportunity to have the statutory demand set aside or petition dismissed on a technicality and potentially costs may be awarded against you – this is where our 20 years of expertise can help you recover money that is owed to you.
The insolvency process must not be used as a debt collection tool and the courts and regulators take a dim view of anyone abusing this process. Therefore, you must consider all other proportionate options prior to issuing a statutory demand, this is where we can help you decide whether an alternative method of enforcement should be taken.
Issuing a statutory demand may have serious implications as it is the first formal stage of the insolvency process. A statutory demand shows you are serious about getting paid and it gives the debtor company 21 days to pay the full amount or come to an arrangement to settle the debt to your satisfaction, alternatively you will be at liberty to issue a Winding Up or Bankruptcy petition once the 21 days has expired. Within the 21 day period the debtor has the option to apply to have the demand set aside if the debt is contested in any way hence why it is important as previously mentioned to ensure there is no dispute before setting out to issue and serve a statutory demand.
Let me ask you this, who would you pay first? The creditor who potentially may wind up your company or the creditor that is constantly calling you but not taking any action.
To issue a statutory demand it costs considerably less than issuing a Winding Up / Bankruptcy petition and if you have a recoverable costs clause in your terms and conditions, you may be able to reclaim these costs back from the debtor along with any interest you may be due.
A statutory demand will either result in immediate payment or an acceptable arrangement, draw out any dispute you may be unaware of or the debtor may just ignore it in which case a Winding Up or Bankruptcy petition would be the next stage. I must add at this point that you should do your due diligence first to see if going down this route is a viable option and we can provide you with sufficient information to enable you to make an informed decision.
In respect of commercial debts, I would never recommend to a client to issue a Winding Up petition without having served a statutory demand first unless the client is 100% satisfied the above conditions have been met and even then, I would make them aware of the implications.
If a Winding Up or Bankruptcy order is granted, then the debtor must pay ALL creditors if they wish to have the order annulled so it is in their interest to pay you before the Winding up or Bankruptcy order is granted. Typically the Official Receiver or a Trustee (Insolvency Practitioner) will be appointed to act on behalf of all creditors and it is their job to realise/liquidate assets in order to pay off all creditors. Depending on your due diligence this may result in a 100% payout for all creditors, a partial dividend or no dividend at all so it is important to do your due diligence properly. Ultimately you do not want to be the one who spends more money to wind up a company or make someone bankrupt and get a nil return.
Based on our experience there are so many variables and outcomes that I cannot go into now but please do not hesitate to contact me if this an area you would like to explore.
Don’t be the creditor who just calls and takes no action, please get in touch with us and we will be able to tell you what your options are and whether a statutory demand would be suitable in the circumstances.
For a no obligation chat about how we can assist you, feel free to contact us on 0203 865 9319 or email me at firstname.lastname@example.org Why not visit our Services page to see what other services we can offer you.