THE STATUTORY DEMAND – A DANGEROUS WEAPON OR A CURE-ALL? GETTING REALLY TOUGH WITH THE DEBTOR

Statutory Demands – the last resort

Getting in all the monies due can often be a nightmare. Even with a good system in place the best regulated businesses can still experience the occasional determined non-payer.

The Same Old Tricks

The scenario is common enough. First the debtor had asked for yet another copy of the bill. Then there was the delay until his computer was up (again?). Then there was a dispute, followed by a wait for a new cheque book and a cheque lost in the post and when the cheque, returned to be properly signed/re-dated, eventually arrived it was dishonoured. Exasperating beyond measure. After a long series of tricks  such as this the creditor has run out of patience.

A Solicitor’s Letter

Time for action. Action which on reflection most would find should have been taken much earlier. For those who believe in employing (and paying) experts the next step is a solicitor’s letter or to instruct us. A simple expedient. It ought to be considered a regular part of the debt-collection routine. It is generally effective and need not be expensive. Work out with your legal adviser the information he requires or just fill in our form.

The letter from the solicitor will (i) demand payment (promptly), (ii) threaten action (possibly for good measure enclosing a copy of the summons) and (iii) may also these days as a precaution against costs later give the debtor the opportunity to disclose whether he has a genuine reason for non payment.

Solicitors generally get all that right. It is when the date for payment arrives that their organization so often lets them down. In Chambers the Clerks say that the only briefs that arrive from solicitors marked “urgent” are those that have been on the solicitor’s desk for the last two months! Don’t let your action be one of them. See that someone rings/faxes the solicitor’s secretary timeously with instructions for the next step.

The Next Step

Too often the next step is ill considered. Or, rather, not considered at all. The experienced debtor playing the system is waiting for a claim.  He can usually reckon on at least a month, especially in Central London, where despite the “Court Charter” mail appears repeatedly to be neglected and lost.

Why not confound him? For the more aggressive there is an alternative to issuing a claim – a Statutory Demand. Practitioners advising on debt collection are regularly overlooking one of the most useful and effective weapons in their armoury.

Then a Statutory Demand

The Statutory Demand is far more than a ritual. Abused it can be expensive (see below) but in the right circumstances it confronts the debtor with a simple and uncomfortable choice – prompt payment – or insolvency.

When To Serve a Statutory Demand

The law stipulates that a person can only be made bankrupt, [or a company made insolvent,] if he owes more than the bankruptcy level, currently £750, and he appears unable to pay a debt (an immediately payable debt). And the law provides that he “appears unable to pay a debt” only if the creditor to whom the debt is owed has served on the debtor a demand (known as “the Statutory Demand”) in the prescribed form (or if execution has been returned unsatisfied) and the demand has not been complied with.

The Form of the Demand

The Insolvency Act requires the demand to be in the prescribed form and there is a pro forma in the Rules1 Rule 6.2(1) specifies the information to be contained therein. There is nothing complicated† and some credit departments draw up and serve their own as a matter of course.

Service – on a firm

Service it must be admitted presents a problem. If the debtor is an individual (as opposed to a company) the Demand has to be served personally. Solicitors employ process servers (and a visit from an unknown caller is unnerving of itself).

Easier to serve on a company

By contrast, serving the Demand on a company is comparatively simple. If it cannot readily be served personally on an officer of the company S 437 (1) of the Companies Act 1985 provides that “a document may be served by leaving it at or sending it by post to the registered office.”

Demand BEFORE Judgment – ‘A High-risk strategy’

It is idle to pretend that there are not risks associated with the serving of a demand without first having obtained judgment. It is not improper and indeed many cases are clear-cut, but if there is a genuine dispute – particularly if sufficient to bring the amount below £750 (£5000 for an individual) , there is a risk of being held in abuse of process, even innocently.

“If you go in you’re sure to win. Faint heart never won fair lady”

The forms for Statutory Demand (one for individuals, one for companies) are simple. They are readily available (from HMSO/ Oyez or from INDICATOR £2 plus s.a.e.). Once the risks are appreciated Statutory Demands should hold terror only for the recipient. They spell out for him the painful consequences of non-compliance. It is an intrepid debtor indeed who faced with such a demand will not come to settlement. The mystery is why so few practitioners consider this route when dunning for their clients.

L M Wise FCA
Barrister-at-Law

1 Sch 4 Form 6.1 – 6.3

†[The demand must be for a debt currently due and must contain explanations: (a) the purpose of the demand and the fact that if the debtor does not comply with the demand bankruptcy proceedings may be commenced; (b) the time within which the demand must be complied with to avoid that consequence (18 days); (c) the method(s) of compliance open to the debtor; (d) his right to apply to the court for the demand to be set aside; and Rule 6.2(2) stipulates for the name, address and telephone number of an individual to be communicated with should the debtor wish to secure or compound for the debt. And an individual must sign the demand. Nothing complicated in any of that. As one Registrar put it: “so long as it is a “clear intimation that payment is required.” If the demand is “peremptory and unconditional nothing more is necessary and the word “demand” need not be used.2″ It may be “polite or not – neither is the validity lessened by its being clothed in the language of politeness, but the nature of the language is immaterial, provided it has this effect.3”]