One of the most frustrating things for business owners and directors are misconceptions about running a firm from the general public. 

There are several things that are misunderstood or generally not grasped and how a company handles debt might be at the top of the list. 

For instance, there is a difference between sustainable and unsustainable debt.  

Sustainable debt is money you borrow for investment, new equipment, staff or whatever else you need to grow your business, generate more income and are able to afford the repayments without hampering the day to day running of the business. 

Unsustainable debt is just that – debt that becomes a problem either through not being able to afford repayments when they fall due or that the total debt amount is unlikely to be cleared and will become a millstone in the future. 

So while many people outside of business think all debt is more like the second definition, you know there is a difference. 

Unfortunately, what begins as sustainable debt can become unsustainable if not managed correctly and creditors taking a more aggressive, less patient approach is causing more businesses to grapple with early demands for repayment that they might not have budgeted for. 

The first step on this path is usually receiving a statutory demand.

What is a statutory demand?

A statutory demand is a formal written order for the payment of a legal and outstanding debt from a creditor. 

It sets out the amount that must be paid and the further steps that can be taken against the company if the payment is not made within the time frame. 

Creditors can issue a statutory demand against a company for as little as £750 and if they have had no success with previous requests for repayments. 

Once served the business has up to 21 days to either pay the debt in full, make alternative repayment arrangements or alternatively challenge the demand if the directors don’t believe it is legitimate or has standing.

What are the consequences of ignoring a statutory demand? 

Ignoring a statutory demand can have serious consequences for you and your business. The potential timeline of events following the failure to respond may look like the following: 

  • Failure to pay off your debt within the allocated time scale allows the creditor to apply for a winding up petition to the court. 
  • Once you have received a petition you have seven business days to take action before it is advertised in the London Gazette
  • The advertisement will alert other creditors of the situation and they may decide to join the same petition to make a claim for their own debts 
  • The advertisement will also alert the bank of the situation, who will then freeze any business accounts you have with them making it difficult to trade 
  • After a further seven days following the advertisement in the London Gazette, the court can issue a winding up order to commence the liquidation.
  • You may also become liable for the creditors legal fees associated with pursuing winding up proceedings, adding to the total amount owed

Setting aside a statutory demand 

You can apply to dispute the debt listed on the statutory demand form, which if successful will result in the  demand being ‘set aside’ by the court. 

Grounds for setting aside include:

  • The debt is being disputed, in full or in part, with the creditor
  • The debt is owed is less than £750 
  • You have a counterclaim against the amount due where the above point applies
  • The statutory demand has not been served or prepared correctly
  • You have consistently paid the debt and have not missed any payments

It is important to note that you should only begin the application process if you have good grounds for setting aside the statutory demand. It is a court process, and if you use it as a delay tactic, it will result in a costs order being made against you, increasing the overall debt level. 

So if you’ve received a statutory demand then it’s time to speak to one of our expert advisors. 

We offer a free initial consultation for any director or business owner who wants to arrange one. 

They can advise you on how to handle all debts the company has and what it can do to make them manageable in order to help the business come back even stronger in future.