Issuing a statutory demand against a company can be highly effective - but get it wrong and it can lead to an injunction and severe costs penalties. Whatever your situation, we can help advise and make sure you avoid common mistakes
Insolvency Act Requirements for a statutory demand against a company
A statutory demand against a company is a form of written demand for payment pursuant to Section 123(1)(a) or 222(1)(a) of the Insolvency Act 1986. A complete copy of those two sections of the Act are set out below.
- a statutory demand company must state the amount due and owing to the creditor at the time of the demand;
- the demand can include VAT and interest that has accrued prior to the date of demand;
- a statutory demand against a company cannot include future interest or any other debts that the company will be liable for in the future;
- the demand must separately identify the amount owed and break down the separate amount of interest if that is being claimed.
Statutory demands against companies are a common way of trying to seek payment of outstanding debt. There is no statutory demand minimum debt level against a company, although ordinarily they are used in debts over £750. This is because if the statutory demand against the company is not challenged, the creditor can then proceed with a winding up petition against the debtor. Ultimately, the creditor can then wind up the company if payment is still not made.
Statutory demands are a good and effective way of putting pressure on a company to pay outstanding debt. If they do not, then they are normally aware of the threat of a winding up petition which can follow.
The relevant provisions in the Insolvency Act are set out below
Insolvency Act s.123 – definition of inability to pay debts
(1) A company is deemed unable to pay its debts—
(a) if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company’s registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, or
Insolvency Act s.221 – Winding up of unregistered companies.
(1) Subject to the provisions of this Part, any unregistered company may be wound up under this Act; and all the provisions of this Act about winding up apply to an unregistered company with the exceptions and additions mentioned in the following subsections.
(2) If an unregistered company has a principal place of business situated in Northern Ireland, it shall not be wound up under this Part unless it has a principal place of business situated in England and Wales or Scotland, or in both England and Wales and Scotland.
(3) For the purpose of determining a court’s winding-up jurisdiction, an unregistered company is deemed—
(a) to be registered in England and Wales or Scotland, according as its principal place of business is situated in England and Wales or Scotland, or
(b) if it has a principal place of business situated in both countries, to be registered in both countries;
and the principal place of business situated in that part of Great Britain in which proceedings are being instituted is, for all purposes of the winding up, deemed to be the registered office of the company.
(4) No unregistered company shall be wound up under this Act voluntarily [except in accordance with the EC Regulation].
(5) The circumstances in which an unregistered company may be wound up are as follows—
(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;
(b) if the company is unable to pay its debts;
(c) if the court is of opinion that it is just and equitable that the company should be wound up.
(6) A petition for winding up a trustee savings bank may be presented by the Trustee Savings Banks Central Board or by a commissioner appointed under section 35 of the Trustee Savings Banks Act 1981 as well as by any person authorised under Part IV of this Act to present a petition for the winding up of a company.
On such day as the Treasury appoints by order under section 4(3) of the Trustee Savings Banks Act 1985, this subsection ceases to have effect and is hereby repealed.
(7) In Scotland, an unregistered company which the court of Session has jurisdiction to wind up may be wound up by the court if there is subsisting a floating charge over property comprised in the company’s property and undertaking, and the court is satisfied that the security of the creditor entitled to the benefit of the floating charge is in jeopardy.
For this purpose a creditor’s security is deemed to be in jeopardy if the court is satisfied that events have occurred or are about to occur which render it unreasonable in the creditor’s interests that the company should retain power to dispose of the property which is subject to the floating charge.
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