If your company has received a Statutory Demand then it’s important to make sure you deal with the matter. In this article we explain what a statutory demand actually is and outline the steps you can take.
What is a statutory demand?
A Statutory Demand (SD) is often the last step in the debt collection process before a winding up petition and as such it is something that deserves serious attention.
Typically the debtor concerned will have received a series of invoices, statements, credit control calls and letters asking for payment. If all of these have been ignored and no payment has been made then the creditor will often issue a statutory demand. These can be for any amount and if not paid and it is over £750 then the creditor can petition the court for compulsory liquidation.
Be aware that a statutory demand is not designed to take the place of a County Court Judgement. If the debt is disputed then the creditor shouldn’t issue an SD as it is likely to be set aside and any court costs awarded against them. This means that if you have received an SD then you know the creditor is serious.
What action can you take?
If a Statutory Demand lands with a thud on your doormat there are a number of things you can do.
The simplest method is to pay the bill. It’s unlikely that you’ve been unaware of the debt right up until this point but by now you know that the creditor isn’t going to go away so if you have the cash, or can raise it then just contact the person issuing the SD and arrange payment.
If you don’t have all of the cash available then calling the creditor and negotiating may prove fruitful. Nobody wants the hassle of going to court and the fact is that the process from this point on is likely to become expensive. If the creditor files for liquidation then it is highly unlikely that they will get all of their money back so negotiating time to pay or a discount may work.
Borrowing money, especially if your company has a good credit score may be an option but it is important that you are realistic about your ability to pay the loan back. Putting your company into more debt may not only be foolhardy but also illegal if you are insolvent and have no prospect of servicing a loan. Companies that don’t have a good credit score may find it impossible to get a loan on anything like sensible rates though.
A short term fire sale may also be a route to be explored. Do you have excess stock you could dispose of or unused assets? Selling these off at a heavy discount for cash payment is something you could look at.
If you have an underlying profitable business model but are simply short of working capital then finding new investors who may buy shares in the firm is an option. It will mean giving away part of the value of the company but in return your business will receive cash that could secure its future. Be aware though that there are regulations around selling shares in companies and you should take professional advice before going down this route.
Often a statutory demand is simply the symptom of a much wider issue and other creditors may also want to be paid. If this is the case then the directors may well choose to look at more formal options.
A Creditors Voluntary Arrangement is a method of making an agreement with creditors to pay off their balances over a longer period of time. It’s also possible that the value included in the CVA could be discounted. You will need the services of an insolvency professional to deal with this but if the underlying business is sound then it is certainly worth considering.
If the business has no prospect of trading out of its difficulties then it is important that the directors do not allow the company to trade whilst insolvent. If your business fails the cash flow or balance sheet test then it is vital to take action quickly and decisively.
An insolvent company may need to look at Administration as a method of protecting the directors from a charge of wrongful trading. Placing your company in administration means that you give up control to a Licenced Insolvency Practitioner who then deals with the company’s affairs for the benefit of its creditors.
Administration may seem like the end of the road however it can simply be a step towards a Pre-Pack Arrangement where the good parts of the business are bought from the administrator and placed in a new company or ‘newco’ which will then continue to trade. The newco can for example buy machinery, intellectual property such as trade names and brands and then trade to all intents and purposes free from the debts that were hampering it before.
The final and most drastic option is to liquidate the company. If it becomes clear that there really is no future for the company then applying for voluntary liquidation may be the answer. It is of course true that it could be possible to wait for the creditor to complete the process by applying for a winding up order and compulsory liquidation.
If you receive a Statutory Demand and don’t have the cash to pay off the creditor then you will need to take advice from an experienced licenced insolvency practitioner. They can give you clear advice as to which of the options we have outlined will be most suitable for you.