Supply chain · 19 February 2019

My client won’t pay 7, 000 in unpaid invoices time to serve a statutory demand?

statutory notice
Would you neglect to run a credit check on a potential client?
Grid Law founder David Walker advises a sole trader struggling to receive payments worth almost 7, 000 from a building firm and clarifies the process of statutory demands.

Question

I found your website when I was researching statutory demands.

I am a heating engineer and run a small business as a sole trader. I have a situation with a builder who owes me approximately 6, 600. The amount is made up out of three invoices for 1, 700, 1, 300 and 3, 600.

The two smaller invoices are for jobs that are complete and the invoices and are now overdue. The 3, 600 is a stage payment on a job I am part way through and am almost finished. On this job there is a further 1, 600 that will be due on completion.

However, due to the payments that are overdue, I have informed the builder that I will not proceed with the planned work until all my invoices are settled.

Then, once the balances have been settled I will continue and complete works.

The builder did not like this and said I was holding him to ransom.

I replied saying that I have no choice. I run a small business and he cannot expect me to wait for payment to ease his cash flow on his projects.

There’s no dispute over the amount owed, he just keeps making excuses for not paying. For example;

i’ve transferred the money?

i’m going to the office to do it now?

it should be in your account now?

I have since run a credit check on this builder and found that he has County Court Judgments (CCJ) against him and companies that have gone bankrupt etc. I can’t believe I was so naive as not to do a credit check in the first place. However, I was and this is my situation now.

My question to you is:

Can I serve a statutory demand without any notice that I am going to do it, or is there a legal procedure I need to follow in order to do that?

Or, is there another legal route that would be more effective in this situation?

My future position is that once I’ve been paid the money Im owed I will not work for this builder again, other than to complete my works to date. So, the preservation of a business relationship is not required in this situation.

Answer

Thanks for your question.

It sounds like you have given the builder plenty of chances to pay so there is no need to do anything else before issuing a statutory demand. However, if you want to send him one final warning that this is what you intend to do, you can.

Statutory demands are not part of any court process, there are no fees to pay and they don’t commit you to taking any further action. Therefore, you’re not going to do any harm if you do send it without any further warning.

Serving a statutory demand can be a very effective way of obtaining payment because the consequences of not paying are severe.

After 21 days, if payment has not been made, you have the right to serve a bankruptcy petition against an individual or winding up petition against a company.

If the debtor wants to avoid this, they will usually pay up.

In your case, this may not be as intimidating for the builder as it would be for someone running a profitable business. It sounds like he’s been in this situation before and may just accept the consequences to avoid paying.

Is the builder operating through a limited company or is he a sole trader?

The reason I ask is that you need to choose the correct form. If the builder is a limited company, you should use form SD1. If he is an individual / sole trader, you should use form SD2.

Statutory demands for individuals and companies

Also, the rules for when you can issue a statutory demand against an individual and a company are slightly different. A company must owe you at least 750 and an individual must owe you at least 5, 000.

In both cases, the debt must be undisputed.

As you are owed more than 5, 000 and this is an undisputed debt, issuing a statutory demand and serving it on the builder is a good option for you.

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Court case

How to issue a statutory demand and winding up petition

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.

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Disadvantages to statutory demands

Unfortunately, there are disadvantages to statutory demands.

One disadvantage is that if the builder doesnt pay and you do follow up with bankruptcy or winding up proceedings, you will be just another unsecured creditor. You will rank alongside all the other unsecured creditors who are owed money by the builder and will be paid in equal proportions to them.

If the builder has any secured creditors, i.e. a bank which has a charge or mortgage over property he owns, they will be paid before you. If there are insufficient assets to cover all the liabilities you may only receive a fraction of what you are owed, if anything.

Another disadvantage of statutory demands is that they can only be used to recover undisputed debts.


 
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ABOUT THE EXPERT

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.

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