Many companies will face financial difficulties at some point in their business life. There are many factors that can contribute to a negative cash flow, such as clients delaying on repayments and any defaults against your company. For companies suffering from some of the above issues, you are at risk of a statutory demand. A statutory demand is a huge threat and is, often, a precursor to a winding up petition.
Business Rescue Expert, a specialist insolvency practice, are sharing what you should do in the event of a statutory demand.
What is a statutory demand? It’s an ultimatum for payment due to your creditors. For those companies receiving the demand, a winding up petition is ever-present. Generally, a winding up petition results in the dissolution of your company. For sole traders, it’s likely you could be facing a bankruptcy petition due to the demand.
A statutory demand is not, in fact, delivered by post, but handed to the individual who owes the debt (in the case of sole traders). Alternatively, it will be delivered directly to the director, or left at the registered office of the limited company.
Once you have been served with a statutory demand, you will have 21 days to respond. The best option for your company is to pay the total sum or attempt to negotiate a payment plan with your creditor. However, at this late stage in recovering repayments, the creditors may be unlikely to agree. Should your company owe them a debt of more than £750, they may opt for a winding up petition.
Ultimately, your creditors are looking to recover their losses. A statutory demand is, certainly, not to be taken lightly. If your creditor does agree to your payment plan, you must keep to the specified terms. If you are facing any difficulties in doing so, you must contact your creditors immediately to make alternative arrangements.
If you believe your company is insolvent and cannot meet the terms, you can take steps to wind up the business. For instance, company voluntary arrangements and members voluntary liquidation may be suitable options. If you dispute the demand, you must file this dispute in court within 18 days upon receiving the document. You must only dispute the demand for far and just reasons, such as the debt is not correct, you have a counterclaim against the amount due, there are other ongoing legal proceedings or the demand was not served properly.
You must make an application via this form, providing as much detail as possible within your witness statement. It’s also important to note that the creditor will be asked for their response, with a hearing set to decide whether the demand is just. If you are successful in stopping the demand, the creditor may be asked to pay your costs.
