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The legal basis of statutory demands is relatively straightforward – the demand, after valid service, gives the debtor 21 days formal warning of intention to commence bankruptcy or winding up proceedings.
As is obvious, a statutory demand is a document with serious implications and if you are served with a demand, you would be very ill advised to just ignore it.
Statutory demands have proved controversial because they are regularly used for tactical purposes.
The underlying position is that a statutory demand should only be used where there is an uncontested debt of over £5,000.00. It follows from this that it may well be an abuse of the correct use to serve a demand where you, as creditor, cannot be sure that the debt is uncontested.
The obvious way to be sure a debt is uncontested is to obtain a court judgment first. However, the problem with that is that it takes time and the system can be exploited by a debtor seeking to buy time who files spurious defences. Hence the temptation to take the risk of going straight to the statutory demand stage before getting a judgment.
In circumstances where there is no court judgment against an individual or business or a clear, open acceptance of liability in writing, it is a high risk tactic and strategy to serve a statutory demand. In addition to your own attitude towards risk, experienced legal advice can assist as to making the right call.
The main risk if you serve a demand without a judgment is that the recipient will, within 18 days of receipt, demand that you withdraw the demand or an application will be made to set aside the demand. If the creditor refuses to withdraw and a successful application is the made to set aside the demand, a hefty costs order will usually be made against the creditor.
If you need a solicitor for advice on a contractual debt, how to recover or defend a dispute or about use of a statutory demand or applying to set aside a statutory demand, we are highly experienced in this area.