Neither the Courts nor the Insolvency Rules uphold them as a method of Debt Recovery, but the efficacy of Statutory Demands is undeniable when used properly.
Many urban myths surround personal insolvency, one of which being that is quick, easy and immediately fruitful to make someone bankrupt. Not true. Procedures must be followed, but when they are the threat of being made bankrupt is sometimes greater than the end result.
In most situations, a Statutory Demand must be personally served on an individual from whom you are owed money before you can even consider applying for their bankruptcy. This is for good reason, as it would be little short of anarchic to be able to bankrupt people at will.
The criteria are pretty tight too. Not only must the debt exceed £750, but there can be no argument that it is due and payable, and no security for it can have already been given. Contrary to popular belief it is not permitted to add costs or statutory interest to a debt demanded this way. Certain (unliquidated) debts fall outside those permitted too, such as un-assessed solicitors’ bills.
The form itself is reasonably user friendly but it must be filled in correctly, and full details of the debt including how it arose clearly set out. The Court does not serve (or issue) a Statutory Demand, that is the Creditor’s responsibility, but it sure will go against you at a later date if it picks up that the content is wrong.
Bizarrely there is no statutory requirement to personally serve a Statutory Demand. But there is a statutory requirement that to issue a Bankruptcy Petition a Statutory Demand must (in most cases) have been personally served previously. Proof of personal service will be required by the Court in the form of a Witness Statement. Of course there is nothing to stop you simply sending a Statutory Demand to someone from whom you are owed money, however if they are wise they will know you can not take their insolvency any further and may simply ignore it.
Once served the Debtor has 18 days to apply to set the Statutory Demand aside, or 21 days to pay the debt. If they do neither, only then can a Petition for their Bankruptcy be issued.
A Statutory Demand has a pretty short shelf-life too. If a Bankruptcy Petition is not issued within 4 months of service, the Statutory Demand expires.
That said, if a Debtor simply refuses to pay a debt which is undisputedly due, Statutory Demands work. The mere threat of personal insolvency still strikes fear into the heart of most people. Many professionals, such as solicitors and accountants, can not practise their careers if they are bankrupt. In cash strapped times, when he who shouts loudest gets paid first, service of a Statutory Demand is high up the decibel level of debt recovery. If you need to strong arm money you are owed out of a Debtor, and you know they can find the cash, Statutory Demands should be your first weapon of choice.
By Lucy Tarrant