How to issue a statutory demand and winding up petition
Providing a solution for business owners with clients consistently refusing to fulfil payment, Grid Law founder David Walker explains how to issue a statutory demand and winding up petition.
Most businesses know the frustration of having clients who owe them money. This frustration can turn to anger when there’s absolutely no excuse for not paying. Clients have no complaint whatsoever about the quality of the work, they simply won’t part with their money.
Business owners know that is some real pressure is applied clients will most likely pay up but each know that starting legal action will take time, effort and money.
Even if a court victory is achieved, this still doesnt guarantee payment will be forthcoming. A company may have to send in the bailiffs or start some other form of enforcement action to actually get the money out of a client.
So, what should be done if this happens to you?
Well, there is a fast and effective alternative to legal action. You could issue a statutory demand.
What is a statutory demand?
A statutory demand is a formal demand for payment and, if a client doesnt pay, it can be used as evidence that they’re insolvent. If a client is insolvent, the next step is to wind them up (if they’re a company) or make them bankrupt (if they’re an individual or sole trader.)
If a client is running a profitable business, they won’t allow this to happen over an invoice and will usually pay up in under 21 days.
The great thing is, businesses can start this process quickly and easily with only one form and, unlike the courts, there are no fees to pay.
The downside is that the issuing of a statutory demand can only be made in certain, specific circumstances, which Ill explain below.
Issuing a statutory demand can also be seen as an aggressive move, so a relationship with a client is likely to be damaged as a result. However, if a company gets to the stage where it needs to take this action, a client will have already seriously compromised the relationship, so this shouldnt put anyone off.
How to issue a statutory demand
So, what’s the procedure for issuing a statutory demand?
The first stage in this process is to check whether a debt qualifies, because a company cannot issue a statutory demand in all circumstances.
To qualify, the debt must be over 750 if a limited company owes money, and over 5, 000 if an individual owes money.
In both cases, the debt must be undisputed.
If a business is owed less than these amounts, or the debt is disputed for any reason, then a statutory demand shouldnt be issued. Instead, the aggrieved party should pursue a claim through the courts.
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If a debt does qualify, the next stage is to complete a statutory demand form.
Statutory demand forms
There are four different statutory demand forms to choose from. If the debtor (the client) is a limited company, an SD1 form is most likely needed. If they’re an individual, it’s an SD2 form.
The forms are available for free online, but please note that there are other versions of the forms for use in specific circumstances, so check that you have the right one.
The form should be self-explanatory to complete as it has guidance notes on it. Businesses will need to complete details of the debtor, the creditor (the company, whoever is owed the money) and details of the debt.
When it’s complete, the form will need to be served to the client.
The Insolvency Rules say that when you’re serving a statutory demand on an individual, you must:
do all that is reasonable to bring the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, serve the demand personally.
In reality, this means that ideally it should be served personally but, if this isnt possible, email it, post it or deliver it to their home address.
David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry, advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.