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Tips for handling a statutory demandFirstly what is a statutory demand?
It is a written notice demanding payment of a debt to a creditor. The debtor
may be a company or an individual. If a statutory demand has been issued, this
indicates that the creditor intends to present a winding up petition to the
business if the debt is not paid or in the case of an individual a bankruptcy
petition.
It is very important to be aware of the serious implications of s statutory
demand if your company is having difficulty paying its creditors. There is a
legal presumption that a company which has been served with a statutory demand
and does not pay the amount owed within three weeks is unable to pay its debts.
In other words a court will presume that the company is insolvent and therefore
has the power to wind up the business on the basis of this assumption.
There are strict rules surrounding how a statutory demand must be served on a
debtor. Where it is for an individual, the creditor must take all reasonable
steps to deliver the notice by hand. If the debtor is a company, the demand must
be served at the registered office of the business. If this is not done, then
the demand may be invalid and unenforceable.
If you have received a statutory demand, you have three weeks in which to
respond to it. There are basically four options depending on your business'
circumstances:
Pay the amount owed in full. Clearly after the creditor receives payment,
the matter will be settled and the demand dropped.
Talk with the creditor and try to negotiate to repay the debt over a
reasonable time period. A court will generally take a dim view if a creditor is
simply using a statutory demand as a method of debt collection. You may be able
to get the court to rule in your favour if you believe that you are making a
reasonable offer to repay the debt over a longer period and the creditor is
unwilling to agree to it.
Present the court with a counter claim as to why you believe the debt is not
valid. If the court upholds this claim, the statutory demand will be
extinguished and the creditor will not be able to take further action against
your company.
You can choose to effectively ignore the demand and not pay. If the demand
is valid but no payment agreement is reached after a three week period, the
creditor is entitled to present a winding up (bankruptcy) petition against your
business which is likely to be upheld by the court. This will have serious
implications. On receipt of a winding up petition, your company bank account
will be frozen. Then, if the petition is not withdrawn, the business will be
closed.
It is important to understand that the court views the service of a statutory
demand as the first step towards declaring a company or individual insolvent. It
therefore follows, if you have received a statutory demand but cannot reach a
payment agreement, the court may allow your creditor to proceed with issuing a
winding up petition to wind up your company. However, any creditor would be
foolish to issue a statutory demand unless they have tried and failed to collect
their debt through normal collection procedures. If a creditor has not been
reasonable in negotiating repayment terms or there is a genuine dispute over the
validity of the debt or a counter claim could overturn it, then the court will
very often throw out the statutory demand.
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Statutory Demand
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